LIVE MARKETS-Friday data: Core cap orders jump, September consumer sentiment upwardly revised

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FRIDAY DATA: CORE CAP ORDERS JUMP, SEPTEMBER CONSUMER SENTIMENT UPWARDLY REVISED

Two sets of stronger-than-expected economic data on Friday failed to put much bounce in the market's step, with the major US stock indexes paring earlier gains as we speak.

Is it because a solid economy will embolden the Fed to tighten policy in order to rein in inflation? Treasury yields seem to think so.

New orders for long-lasting, US-made goods were unchanged last month, taking a pause following July's downwardly revised 0.9% gain. That's a better reading than the 0.3% slowdown analysts anticipated.

Digging below the headline of the Commerce Department's report—which covers everything from waffle irons to attack drones—a 4.3% decline in commercial aircraft and a 0.6% dip in autos/parts held the headline at zero, offsetting a 1.1% rise in machinery orders, a 1.2% increase in primary metals, a 0.7% increase in the closely watched capital goods segment and, significantly, a 1.5% rise in computer-related equipment, a sign that the AI buildout is alive and kicking.

Excluding transportation items, new orders rose by 0.3%.

Capital goods and primary metals both rose by 1.1%.

New orders for core capital goods—which exclude aircraft and defense categories and are considered a barometer of US corporate capex plans—increased by 1.6%, more than triple the 0.5% consensus, marking a solid acceleration from the prior month's upwardly revised 0.6% gain.

Shipments of core cap goods, which feed into the business equipment spending component of GDP, rose by a solid 0.6%, a slowdown from July's 1.4% increase.

"There’s good reason beyond the headline to stay upbeat on business equipment spending," writes Oren Klachkin, financial market economist at Nationwide. "Core orders are tracking very positively and core shipments point to double-digit annualized growth in business equipment spending in Q3 even after we account for the inflation impacts."

Next, the University of Michigan's (UMich) second and final stab at August consumer sentiment USUMSF=ECI showed the mood among consumers is a bit less dire than originally reported.

The index came in at 48.1, a 0.3-point improvement over the initial reading, but still 6.9% gloomier than the final August print.

Survey participants' aggregate assessment of present conditions was unrevised at 50.9, while expectations improved by half a point from the initial reading to 46.3. Still, those two metrics showed monthly drops of 1.9% and 10.1%, respectively.

"Views of current and year-ahead expected personal finances both weakened about 10% this month, with concerns over high prices continuing to climb," writes Joanne Hsu, UMich's director of consumer surveys. "Buying conditions for durables improved a bit, in part due to a perception that completing such purchases now would help consumers avoid higher prices in the future."

"The short-run outlook for business conditions plunged amid renewed worries that elevated fuel prices and re-escalating trade disputes could pass through to the economy as a whole," Hsu adds.

The graphic below shows consumer expectations currently sit 29.7% below the initial pandemic-related shutdown shock.

The inflation expectations element was unchanged from the initial take: respondents expect annual price growth of 4.6% a year from now. That's hotter than UMich's final 4.0% take for August, and 2.2 percentage points north of the most recent core CPI reading.

Longer term, consumers expect annual inflation of 3.4% five years from now, up from 3.3% a month prior.

(Stephen Culp)

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