AI spending is hot, and geopolitical conflicts are fueling! US core capital goods orders increased by 0.9% in June, and shipments recorded the biggest increase in more than four years

The Zhitong Finance App learned that the increase in US corporate equipment orders in June was higher than market expectations, bringing a successful end to steady capital expenditure in the first half of the year. According to data released by the US Department of Commerce on Monday, orders for core capital goods (excluding aircraft and military equipment), which are regarded as alternative indicators for corporate equipment investment, increased 0.9% month-on-month in June, and the May data was revised up to 1.9%. Total orders for durable goods with a service life of at least three years, including commercial aircraft and military equipment, increased by only 0.3% during the month, falling short of expectations.

Since this year, US corporate investment has continued to be strong due to the surge in US defense orders driven by artificial intelligence (AI) related spending and geopolitical conflicts. These factors are expected to continue to support investment growth in the coming months.

The durable goods order report shows that orders for computers, communications and electrical equipment all increased, as did orders for primary metal products.

US tech giants — Alphabet Inc. (GOOGL.US), Meta Platforms Inc. (META.US), Microsoft (MSFT.US), and Amazon (AMZN.US) — said in April that they plan to invest up to $725 billion in AI this year.

Looking ahead to the future market, US President Trump's new round of tariff policies, compounded the ongoing tension in the Middle East region, has added uncertainty to business operations. This may not only drive up prices, but may also inhibit some investment plans.

After a sharp decline in May, commercial aircraft orders, which fluctuate a lot from month to month, increased 3.7% month-on-month in June. Boeing (BA.US) said it received a total of 121 aircraft orders in June, far higher than 27 in May.

Shipment volume data

According to the government report, shipments of core capital goods (also excluding aircraft and military equipment, a less volatile indicator) increased 1.9% month-on-month in June, the biggest monthly increase since the end of 2021.

In the past three months, shipments of this type of goods increased at an annual rate of 11.1%, up from the first quarter.

Economists will further revise their second-quarter GDP estimates, which are due to be released on Thursday, based on Monday's data. Prior to the release of the durable goods report, the Atlanta Federal Reserve's GDPNow model predicted that equipment spending would contribute about 0.88 percentage points to GDP in the second quarter, the biggest driver in more than a year.

Stephen Stanley, chief US economist at Santander's US Capital Markets, said in a report: “Overall, corporate investment spending remains strong.” He added that “equipment spending is likely to once again be the strongest component of final demand” in the second quarter.