Durable Goods Orders Jump 3.7% in September

A gauge of U.S. business investment plans fell sharply in September in a possible sign companies shut their wallets out of concern a budget battle brewing in Washington would damage the economy.

New orders of non-military capital goods other than aircraft, an indicator of business spending plans, fell 1.1 percent last month, the Commerce Department said on Friday.

A surge in volatile aircraft orders helped push overall orders of long-lasting factory goods to rise a more-than-expected 3.7 percent during the month.

But orders for durable goods, which include everything from toasters to tanks, fell 0.1 percent when factoring out transportation equipment.

The data suggests businesses may have scaled back investment plans as a political impasse in Washington threatened to lead the government to miss payments on its obligations, although firms also could be trimming these plans over more general doubts regarding the economy's strength.

"We are looking at a situation where businesses were preparing for the chaos in Washington which actually happened," said Joel Naroff, president of Naroff Economics Advisors in Holland, Pennsylvania.

The government impasse was eventually resolved in October, though not before a partial government shutdown left hundreds of thousands of people out of work for weeks and also delayed the release of a slew of economic data.

While the economy was already struggling before the government shutdown, economists estimate the shutdown will shave as much as 0.6 percentage point off annualized fourth-quarter gross domestic product through reduced government output and damage to both consumer and business confidence.

The pace of hiring by U.S. employers slowed sharply in September, leading many economists to downgrade their views on economic growth for the rest of this year.

Friday's data bodes poorly for economic growth in the third quarter as well. Shipments of non-military capital goods other than aircraft fell 0.2 percent in September.

These so-called "core" shipments, which the government uses directly for calculating total economic growth, has now fallen in two of three months in the third quarter.

"That strongly suggests third-quarter growth in business investment in equipment will also be negative or, at best, close to zero," said Paul Ashworth, an economist at Capital Economics in Toronto. He lowered his forecast for third-quarter economic growth to a 1.8 percent rate from a 2 percent rate.

Friday's report is part of the catch-up effort in publishing a backlog of economic data due to the shutdown, and the data included revised readings for durable goods orders in August.

Reinforcing the view that the economy was losing steam even before Washington's dysfunction began to rattle businesses' nerves, the report showed new orders outside transportation goods fell more sharply in August than previously estimated.

Investors on Wall Street appeared to take little cue from the data. Futures for U.S. stock indexes briefly dipped following the data's publication and then returned to slightly higher levels.