By Harriet Torry 

WASHINGTON -- A decline in orders for long-lasting factory goods in October suggests business investment is softening, a discouraging sign for economic growth in the fourth quarter.

Business investment, a strong spot for the economy in the first half of the year, moderated in the third quarter and appears to have started the fourth quarter on a weak footing. Worries about a trade war, a drop in oil prices hitting energy investment and a stronger dollar making U.S.-made goods pricier for foreign buyers all appear to be offsetting tailwinds from last year's tax overhaul and strong corporate profits.

Orders for durable goods -- products designed to last at least three years, such as computers and machinery -- decreased 4.4% from the prior month in October, the Commerce Department said Wednesday. That was the biggest monthly decline in new orders since July 2017, and it was much steeper than the 2.6% drop Wall Street analysts had expected.

Separately, a decline in consumer sentiment and a jump in a key gauge of layoffs among U.S. workers added to hints of potential trouble for the fast-growing economy Wednesday.

Gross domestic product -- a measure of how much the U.S. produces in goods and services -- grew at a 3.5% annual rate in the third quarter. That came on the heels of a strong 4.2% growth rate in the second quarter. Economists expect the pace of growth to slow considerably in the final quarter of this year.

Private forecasting firm Macroeconomic Advisers' projection for fourth-quarter gross domestic product growth is 2.5%. The Federal Reserve Bank of Atlanta's GDPNow model's latest estimate is for 2.5% growth.

New durable goods orders have declined in three of the last four months. Orders for September were reduced to a 0.1% decline from a previous estimate of a 0.7% increase.

Monthly durable goods orders are turbulent, and last month's decline was influenced by an outsize drop in aircraft orders. The report showed orders in the volatile civilian aircraft category declined 21.4% in October. Still, a closely watched proxy for business investment -- new orders for nondefense capital goods excluding aircraft -- was flat in October after declining 0.5% in September and 0.2% in August.

Tax-law changes approved late last year were designed to incentivize business investment, which expanded at an 11.5% annual rate in the first quarter, but slowed to a 0.8% rate in the third.

"The genuine bad news here is the fact that underlying capital-goods orders and shipments have leveled off over the past three months," Michael Pearce, an economist at Capital Economics, said in a note to clients. "That suggests the sudden weakness in business-equipment investment in the third quarter was not a one-off," he added.

Semiconductor-equipment supplier Applied Materials Inc. last week issued disappointing guidance, and Chief Executive Gary Dickerson described market conditions in the second half of the year as challenging. During an earnings call Thursday, he cited elevated macroeconomic risks, global trade tensions and a pullback in investment in the industry.

Farm machinery maker Deere & Co. said Wednesday that sales and profits in its latest quarter were lifted by demand in its construction and farming markets. Still, the company said that it was pressured by rising raw-material costs, especially in steel, as well as logistics expenses. It has been working to cut costs and raise prices as a result, the company said.

Separately, the Labor Department said Wednesday that the number of U.S. workers filing new applications for unemployment benefits rose last week to the highest reading since June, though they remained near historically low levels. Initial jobless claims, an indication of layoffs across the U.S., increased by 3,000 to a seasonally adjusted 224,000 in the week ended Nov. 17.

Consumer sentiment also cooled slightly just ahead of Black Friday and the peak of the holiday-shopping season. The University of Michigan on Wednesday said its final consumer sentiment index for November was 97.5. That was down from a preliminary reading of 98.3 released earlier this month and a decrease from 98.6 in October.

Despite some somber economic readings, Federal Reserve officials have signaled in recent days they plan to proceed with another quarter-percentage-point increase in their benchmark short-term interest rate when they meet Dec. 19, marking their fourth rate increase this year.

Write to Harriet Torry at harriet.torry@wsj.com

 

(END) Dow Jones Newswires

November 21, 2018 13:40 ET (18:40 GMT)

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