WASHINGTON - Demand for U.S. capital goods such as machinery and communications gear dropped in July by the most in eight months, a sign manufacturing will contribute less to the economic expansion.
Bookings for non-military capital equipment excluding planes slumped 3.4 percent, a Commerce Department report showed Friday. Total orders for durable goods, those meant to last at least three years, jumped 4.2 percent, paced by a 54 percent surge in demand for civilian aircraft.
Possible U.S. tax increases and spending cuts may prompt companies to rein in spending, while a global economic slowdown threatens overseas sales of companies such as Caterpillar Inc. and Deere & Co. Federal Reserve policy makers have signaled they are prepared to take further steps to sustain the recovery if growth doesn't pick up.
"There's uncertainty domestically about the tax environment, and there's uncertainty globally about the outcome of the European crisis," said Millan Mulraine, a senior U.S. strategist at TD Securities in New York, who correctly projected the overall gain in orders. This is "not engendering business investment and hiring," he said. "This would bolster the case for the Fed, suggesting that the soft underbelly of the recovery may be extending into the third quarter."
The median forecast of 75 economists surveyed by Bloomberg called for a 2.5 percent gain in total U.S. durable goods orders. Estimates ranged from a decline of 2.5 percent to a 7 percent increase.