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Business Investment Shows Some Life

Durable goods orders were flat in August, but core capital goods posted their third straight gain, according to data released by the Commerce Department on Wednesday.

Orders for durable goods – items meant to last three years or more – were unchanged in August following a 3.6 percent jump in July. In general, durable-goods orders have been trending flat for the past three and a half years (Chart 1).  Weakness has been concentrated in energy and commodity-related equipment.

The good news in the details was the third monthly gain for core capital goods, which are nondefense capital goods excluding aircraft.  These data are a proxy for overall business investment. Core capital goods rose 0.6 percent in August following a 0.8 percent rise in July and a 0.5 percent increase in June.

Together, these three months of gains may be reversing a mild down trend that began in mid-2014 (Chart 1 again). More data are necessary to be sure that business investment is on a recovering path, but the latest data are an encouraging sign.

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