AI Outlays Lift U.S. Core Capital Goods Orders In June

U.S. orders for nondefense capital goods excluding aircraft (a key gauge of business equipment demand) rose 0.9% in June, while shipments advanced 1.9%, the Commerce Department reported. Businesses increased investment in artificial intelligence, lifting demand in technology categories. May orders were revised up to a 1.9% gain from a previously reported 1.4%.

Orders for computers and electronic products rose 3.1% after a 1.2% increase in May. Electrical equipment, appliances and components advanced 0.9% after a 0.2% gain. Orders for primary metals were up 1.1%, while bookings for fabricated metal products fell 0.5% and machinery edged down 0.1%.

Shipments of core capital goods, which feed into the equipment component of gross domestic product, accelerated after a 0.2% May gain. Financial markets opened firmer following the report, with U.S. stocks higher at the open, the dollar steady and Treasury yields mostly lower.

Economists estimate second-quarter GDP grew at about a 2.1% annualized rate, matching the first quarter, with business investment in equipment expected to post double-digit growth. Some of the strength reflects a rebound in vehicle spending alongside ongoing AI-related outlays.

Across the broader factory sector, durable goods orders increased 0.3% in June after a 4.0% drop in May. Transportation equipment orders slipped 0.2%, including a 0.6% decline in motor vehicles and parts. Civilian aircraft orders rose 3.7%. Boeing logged 121 commercial aircraft orders in June, up from 27 in May, with about 102 for 737 MAX jets. Durable goods shipments rose 0.7% after a 1.1% increase in May.

Manufacturing accounts for about 9.4% of the economy. Economists point to inventory rebuilding and tax rebates as supports for factory output, with some restocking tied to concerns about potential shortages and price increases linked to tensions with Iran. Business inventories have been drawn down for four consecutive quarters.

Christopher Rupkey, chief economist at FWDBONDS, described the backdrop this way: "Equity markets are still wrestling with the valuations of many of these tech companies, but one thing is certain, and that is the capex expenditures of corporate America are keeping the economy afloat despite caution in other sectors engendered by Middle East uncertainty and higher energy prices."

Bernard Yaros, lead U.S. economist at Oxford Economics, highlighted two drivers: "The robustness is not limited to the AI capex boom but also reflects a rebound in firms' spending on vehicles." He added: "Last year's fiscal package raises the after-tax return on qualified capital investment, and this will remain a tailwind over the balance of the year."

Yaros also pointed to risks: "The biggest risk is the on-again, off-again conflict between the U.S. and Iran, but uncertainty around the price of oil does not appear to have deterred business spending on equipment so far."