By Lucia Mutikani
WASHINGTON, Feb 18 (Reuters) – New orders for key U.S.-manufactured capital goods increased more than expected in December and shipments of these products surged, pointing to solid business spending on equipment and economic growth in the fourth quarter.
The strength in the so-called core capital goods orders at the end of the year reported by the Commerce Department on Wednesday, and likely driven by an artificial intelligence investment boom, set the foundation for sustained strength in economic growth in 2026, economists said.
“After the AI boom sustained the business spending category of GDP in the first three quarters of the year, firms outside of the tech space began to re-engage late last year, setting the stage for a noticeable pickup in investment outlays in 2026,” said Stephen Stanley, chief U.S. economist at Santander U.S. Capital Markets.
“This has been and continues to be my main justification for expecting an above-consensus economic performance in 2026.”
Non-defense capital goods orders excluding aircraft, a closely watched proxy for business spending, rose 0.6% after an upwardly revised 0.8% increase in November, the Commerce Department’s Census Bureau said. Economists polled by Reuters had forecast these so-called core capital goods orders advancing 0.4% after a previously reported 0.4% gain in November.
Core capital goods orders advanced 3.5% year-on-year. Business spending on equipment is being boosted by an artificial intelligence investment boom, which has fueled rapid growth in data centers. But tariffs on imports have stifled manufacturing that is not tied to AI. Economists expect a broad manufacturing sector recovery this year as some of the uncertainty from tariffs fades and tax cuts take effect.
Orders for fabricated metal products surged 0.9% in December, while those for electrical equipment, appliances and components rose 0.6%. Machinery orders gained 0.3%. Orders for computers and electronic products soared 3.0%. Primary metals orders shot up 1.7%.
Shipments of core capital goods jumped 0.9% after climbing 0.2% in November. The report, which was delayed by last year’s shutdown of the federal government, was published ahead of the advance estimate of gross domestic product for the fourth quarter on Friday.
Business spending on equipment is forecast to have notched a fourth straight quarter of growth. The economy likely grew at a 3.0% annualized rate in the fourth quarter after expanding at a 4.4% pace in the July-September quarter, a Reuters survey of economists showed.
Orders for durable goods, items ranging from toasters to aircraft meant to last three years or more, decreased 1.4% in December after soaring 5.4% in November.
The decline reflected a 24.9% drop in orders for the volatile non-defense aircraft and parts. Boeing reported on its website that it had received 175 aircraft orders in December, the bulk of them less-expensive models, compared with 164 in November.
Motor vehicle orders rebounded 1.2%. Orders for transportation equipment sagged 5.3% after rebounding 15.2% in November. Overall durable goods shipments increased 1.0% after slipping 0.3% in the prior month.
U.S. financial markets were little moved by the data as investors awaited minutes of the Federal Reserve’s January 27-28 policy meeting.
HOUSING MARKET ACTIVITY REMAINS WEAK
News on the housing market was, however, mixed. In a separate report, the Census Bureau said single-family housing starts, which account for the bulk of homebuilding, rose 4.1% to a seasonally adjusted annual rate of 981,000 units in December. Single-family starts rose to a pace of 942,000 units in November from an 894,000-unit pace in October.
Tariffs on imported goods, including lumber and vanity cabinets, have raised the prices of materials, while worker shortages amid an immigration crackdown are contributing to higher building costs, constraining activity.
Starts for the volatile multi-family housing segment soared 10.1% to a rate of 402,000 units. Overall housing starts jumped 6.2% to a rate of 1.404 million units, the highest level since July, after rising in November to a pace of 1.322 million units.
Permits for future single-family homebuilding slipped 1.7% to a rate of 881,000 units in December. They rose to a pace of 896,000 units in November from an 878,000-unit rate in October.
Sentiment among single-family homebuilders deteriorated further in February, a survey from the National Association of Home Builders showed on Tuesday, with builders citing persistently high land and construction costs as well as still-elevated house prices relative to incomes among constraints.
The Trump administration has implemented a raft of measures, including purchases of mortgage-backed securities and banning institutional investors from buying single-family homes, to improve housing affordability. Though mortgage rates have eased, progress has stalled as worries over federal government debt have kept U.S. Treasury yields elevated.
Mortgage rates track the 10-year Treasury yield. Economists and realtors say more supply is needed to make housing more affordable. The government’s delayed advance fourth-quarter GDP is expected to show residential investment contracted for a fourth straight quarter.
(Reporting by Lucia Mutikani; Editing by Chizu Nomiyama and Andrea Ricci )
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