Manufacturing Struggles; Rising Income Boosts Economic Outlook

WASHINGTON (Reuters) -

A gauge of U.S. business investment plans fell in November and the prior month’s increase was revised sharply lower as the drag on manufacturing from a strong dollar and spending cuts in the energy sector showed little sign of abating.

But the outlook for the economy remains encouraging, with other data on Wednesday showing personal income increased for an eighth straight month in November, which should help to support consumer spending next year.

“The gain in income should prove a tailwind to fourth-quarter GDP growth as consumption remains the most prominent driver of domestic growth activity,” said Gennadiy Goldberg, an economist at TD Securities in New York.

The Commerce Department said non-defense capital goods orders excluding aircraft, a closely watched proxy for business spending plans, dropped 0.4 percent last month. October’s increase in orders for these so-called core capital goods was revised down to 0.6 percent from 1.3 percent.

Manufacturing, which accounts for 12 percent of the economy, has also been hit by efforts by businesses to reduce an inventory bloat and sluggish global demand, which has curtailed new orders growth.

The dollar has gained almost 20 percent against the currencies of the United States’ main trading partners over the last 18 months.

Plunging crude oil prices, which on Monday plumbed their lowest levels since 2004, have put pressure on oil field services firms like Schlumberger and Halliburton, forcing them to slash capital spending budgets.

A survey early this month showed manufacturing contracted in November for the first time in three years. Economists polled by Reuters had forecast core capital goods orders dipping 0.1 percent.

Core capital goods shipments fell 0.5 percent last month after October’s downwardly revised 1.0 percent drop.

Shipments of these goods are used to calculate equipment spending in the government’s gross domestic product measurement. They were previously reported to have declined 0.5 percent in October.