US durable goods orders will be keenly watched - ANZ

Research Team at ANZ, suggests that this week’s US durable goods orders will be keenly watched given recent Fed commentary around business investment.

Key Quotes

“Core new orders tend to be a good guide for non-residential investment. These have been on a steady decline since late 2014. Unsurprisingly, the decline coincided with a peak in oil and gas investment. Investment in the latter of course has fallen sharply after oil prices peaked in late 2014. In recent quarters, mining investment has been recoiling at around 50% y/y.

Despite mining capex being a small proportion of total business capex, it has dragged down overall spending into negative territory. That said, the weakness in business investment is becoming more widespread. We estimate that non-mining investment grew by just under 2% y/y in Q2 2106 – the weakest pace since the US came out of the recession.

The latest FOMC Minutes highlight the concern the central bank has with the investment outlook. Although most members believe that above-trend growth in H2 2016 should result in a further diminution in labour slack, several members noted that continued weakness in business investment posed a downside risk.

Our capex lead indicator suggests there should be a modest improvement in capex in the coming months. This lead indicator is a principal component index that is derived from data in business surveys on capex (intentions) and the Fed’s loan officer survey.”