Economic Report: Durable goods get boost from Pentagon in August, but business investment still weak

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Manufacturers have cut back on investment and production with exports stagnating and the trade war with China disrupting business.

The numbers: Orders for long-lasting or durable goods rose slightly in August, but the increase was largely military-related and unlikely to persist. Demand was weak in most key industrial segments.

A key measure of business investment also fell for the second month in a row, reflecting business worries over the trade war with China and a slowing U.S. economy.

U.S. durable-goods orders increased 0.2% last month, the government said Friday. Economists surveyed by MarketWatch had forecast a 0.7% decline.

Yet if Pentagon orders are set aside, bookings sank 0.6%.

Durable goods are products such as cars, computers or planes meant to last at least three years.

Read: Consumer confidence sinks to 3-month low on trade worries, softer jobs market

What happened: Orders surged 15% for so-call defense capital goods — things like fighter planes, ships, tanks and weapon systems. Orders also rose for machines and primary metals.

Orders fell sharply for commercial planes, however, and demand also waned for new cars and trucks, computers, networking gear, appliances and electrical equipment.

A key measure of business investment known as core orders slipped 0.2% in August. These orders have fallen slightly in the past year, a decline that traces back to the beginning of the trade spat with China. Just two years ago, core orders were rising at a 10% yearly clip.

The originally reported 2.1% increase in durable-goods orders in July, meanwhile, was revised down to 2%.

Big picture: The U.S. trade fight with China hasn’t affected consumers all that much, but it’s another story for business. Manufacturers have been hardest hit, especially export-heavy firms whose sales overseas have stagnated.

Many firms have put off investment or slowed hiring until they get a better sense of if or when the standoff will resolved. The dispute has disrupted global supply chains, raised the cost of supplies and capped the growth of the U.S. economy at a modest 2%.

Market reaction: The Dow Jones Industrial Average DJIA, -0.30% and S&P 500 SPX, -0.24% were set to open mildly higher in Friday trades.

The 10-year Treasury yield TMUBMUSD10Y, +0.67% rose slightly to 1.72%. The yield has sunk from a seven-year high of 3.23% last October, however.