Key Takeaways:
- Factory orders fell 0.3% in June, missing the 0.2% rebound forecast.
- AI infrastructure investment lifted computer and electronic product orders 3.2%.
- Core capital goods orders rose 1.2%, keeping business equipment spending on track.
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US factory orders dip 0.3% in June on AI-driven demand
New orders for U.S. factory goods fell 0.3% in June, missing forecasts for a 0.2% rebound, even as businesses kept pouring money into artificial intelligence infrastructure.
Manufacturing has now expanded for seven straight months through July, the Institute for Supply Management said Monday, pointing to resilience beneath the headline miss. The Commerce Department's Census Bureau reported the June decline Tuesday, following a revised 1.1 percent drop in May, and said orders still rose 5.3 percent from a year earlier.
The drop was driven by weakness in defense and energy equipment. Orders for defense aircraft and parts fell 7.2 percent, while mining, oil field and gas field machinery plunged 27.2 percent. Overall machinery orders, however, rose 0.3 percent. Orders for computers and electronic products jumped 3.2 percent and were up 13.9 percent year on year, while electrical equipment, appliances and components increased 1.6 percent. There were also gains in primary metals, motor vehicles, parts and trailers, and commercial aircraft.
The AI buildout is giving manufacturing, which accounts for 9.4 percent of the economy, a tailwind, though the war in the Middle East is straining supply chains and keeping input prices elevated. Businesses are front-loading orders to avoid shortages and higher prices tied to the U.S.-Israeli war with Iran, a dynamic that has kept demand for technology components and electrical equipment firm even as broader factory orders soften. The elevated input costs, in turn, complicate the inflation picture for the Federal Reserve, which is watching whether supply-chain disruptions feed through to goods prices.
Orders for non-defense capital goods excluding aircraft — a proxy for business spending plans on equipment — increased 1.2 percent in June, above the 0.9 percent estimate reported last week. Shipments of these core capital goods rose 2.0 percent, also topping the prior 1.9 percent reading. The government reported last week that business spending on equipment grew at a double-digit pace for a second straight quarter in the second quarter, showing the durability of the capex cycle.
The mixed data complicates the Federal Reserve's rate path. A cooling factory sector argues for easing, but resilient core capital goods orders and the AI capex boom suggest business investment remains a source of strength. The divergence between the headline miss and the strength in technology-related orders mirrors the pattern across the broader economy, where tech-led investment has outpaced traditional manufacturing. That split has kept a floor under equities tied to data centers, semiconductors and cloud infrastructure even as cyclical industrials have lagged.
For markets, the split points to continued support for technology and AI-related names even as industrial and energy equipment makers face softer demand. The next test comes with the July durable goods report and the Federal Reserve's September meeting, where policymakers will weigh whether the manufacturing soft patch is broad enough to justify lower rates. If core capital goods orders keep climbing, the case for near-term easing weakens; if the factory slowdown broadens, pressure for a cut builds. Either way, the AI capex cycle looks set to remain the dominant driver of U.S. business investment through the second half of the year.
This article is for informational purposes only and does not constitute investment advice.
