American companies are holding off on purchasesof computers, industrial equipment and other long-lasting manufactured goods, atrend that's slowing the U.S. economy.
A fourth straight month of lackluster corporate spending ledmany economists on Thursday to trim their forecasts for growth in theJuly-September quarter. The government will issue its first estimate ofthird-quarter growth Friday, the last snapshot of overall economic activitybefore the presidential election.
The troubling report on business confidence overshadowed adrop in applications for unemployment aid and a slight increase in the numberof people who signed contracts to buy homes.
Orders for durable goods, products expected to last at leastthree years, rose 9.9 percent in September, the Commerce Department said. Butmost of the increase was driven by a spike in aircraft orders, which arevolatile and plummeted in the previous month.
Economists pay closer attention to core capital goods, whichinclude machinery and computers but exclude aircraft. Those orders wereunchanged in September after only a slight gain in August and steep declines inJuly and June.
And shipments of those goods fell for the third straightmonth. That means business spending on equipment and software likely declined4.9 percent in the July-September quarter, economists noted. It would representthe first drop in that category since the recession.
Corporate investment helped the U.S. economy emerge from theGreat Recession three years ago. But businesses have grown more cautious sincespring, seeing tepid growth in consumer spending and declines in exports.
Many companies are worried that their overseas sales coulddampen further if recession spreads throughout Europe, as some predict, andgrowth continues to slow in China, India and other developing countries.
Businesses also fear large tax increases and big governmentspending cuts that will kick in next year if Congress fails to reach a budgetdeal to avert them.
The disappointing report on durable goods led severaleconomists to downgrade their forecasts for third-quarter economic growth.Michael Feroli, an economist at JPMorgan Chase, lowered his forecast to anannual rate of 1.6 percent, down from 1.8 percent. Peter Newland, an economistat Barclays Capital, reduced his forecast to a rate of 1.8 percent from 2percent.
Either figure would reflect little improvement from theApril-June growth rate of only 1.3 percent.
Business investment has slumped even as consumers havebecome more hopeful about the economy in recent months. Consumer confidencerose in October to a five-year high. Retail spending increased in September,mainly because Americans bought more cars, iPhones and appliances. And homesales are up this year, contributing to a nascent housing recovery.
Consumer spending drives nearly 70 percent of economicactivity.
"We have the consumer to thank for keeping the economyabove water," Feroli said.
Still, the gains are far from what is needed to ignite theeconomy and spur rapid hiring. Economists at JPMorgan Chase project consumerspending could increase at an annual rate of 2.2 percent in the third quarter.That's better than the 1.5 percent rate in the second quarter, but still anemicby historical standards.
Meanwhile, sluggish business investment has dragged on jobcreation at U.S. factories. Manufacturers slashed 20,000 jobs in the thirdquarter. Factories had added 194,000 jobs in the previous three quarters.
The job market has been a key topic in this year'spresidential election, which is less than two weeks away. A separate reportThursday suggested hiring remains modest, at best.
Weekly applications for unemployment benefits fell last weekto a seasonally adjusted 369,000, stabilizing after two weeks in which seasonalfactors distorted the data. The four-week average, a less volatile measure,rose to 368,000, the Labor Department said.
Applications are a proxy for layoffs. When they fall below375,000, it suggests hiring is strong enough to lower the unemployment rate.
Applications have fluctuated between 360,000 and 390,000since January. At the same time, employers have added an average of nearly150,000 jobs a month. That's barely enough to lower the unemployment rate,which has declined from 8.3 percent to 7.8 percent this year.
A third report Thursday showed the housing recovery may becooling off. The National Assocation of Realtors index of sales agreementsshowed the number of Americans who signed contracts to buy homes rose onlyslightly in September from August. That suggests sales may level off in thecoming months after solid gains in the past year.
Signed contracts are up 14.5 percent from a year ago.
Housing is rebounding after a six-year slump. New home salesjumped last month to the highest annual pace in two and a half years. Andbuilders broke ground on new homes and apartments at the fastest pace in morethan four years in September.
This year will likely be the first time in six years thathousing contributes to overall economic growth.