“Demand for U.S. capital goods such as machinery and communications gear dropped in July by the most in eight months, indicating companies are pulling back on investment.
Bookings for non-military capital equipment excluding planes slumped 3.4 percent, a Commerce Department report showed in Washington. Total orders for goods 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 and a global economic slowdown are hurting companies such as Caterpillar Inc. and Deere & Co., indicating manufacturing will no longer be a driver of the expansion. Federal Reserve policy makers have signaled that are prepared to take further steps to sustain the expansion if growth doesn’t pick up.
“Companies just want to be prepared for the worst-case scenario,” Omair Sharif, a U.S. economist at RBS Securities Inc. in Stamford, Connecticut, said before the report. “They want to enter the post-election and post-fiscal cliff period with lean inventories. That’s going to be a drag on manufacturing.”
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