U.S. Capital Goods Orders Surge Amid AI Investment Boom

In December, new orders for key U.S.-manufactured capital goods rose more than anticipated, with shipments also experiencing a significant increase. This trend indicates robust business spending on equipment and suggests a solid economic growth trajectory for the fourth quarter of 2026. The Commerce Department reported that non-defense capital goods orders, excluding aircraft, increased by 0.6%, following an upwardly revised 0.8% rise in November. Economists had predicted a more modest increase of 0.4%. Year-on-year, core capital goods orders advanced by 3.5%, reflecting a sustained investment climate bolstered by a surge in artificial intelligence (AI) investments.

ReutersUS core capital goods orders and shipments increase solidly in December

The ongoing AI investment boom has been a critical driver behind the growth in capital goods orders, particularly in sectors such as data centers. Bernard Yaros, lead U.S. economist at Oxford Economics, noted that the tech investment boom is a key factor supporting a positive outlook for equipment spending in 2026. He emphasized that tax cuts and interest-rate relief are expected to broaden investment gains beyond sectors directly related to AI. However, the manufacturing sector still faces challenges due to tariffs imposed by the Trump administration, which have constrained growth in non-AI-related manufacturing.

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Despite the positive trends in capital goods orders, the overall manufacturing sector is not yet fully recovered. A report from the Federal Reserve indicated that factory production rose by 0.6% in January, marking the largest increase since February 2025. However, the sector has lost approximately 83,000 jobs since January 2025, raising concerns about the sustainability of this growth. Christopher Rupkey, chief economist at FWDBONDS, pointed out that while manufacturing production has increased, it has done so without a corresponding rise in employment, attributing this to advancements in automation.

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The housing market presents a mixed picture, with single-family housing starts increasing by 4.1% in December, reaching an annualized rate of 981,000 units. However, sentiment among homebuilders has declined due to high land and construction costs, alongside elevated house prices relative to incomes. The Trump administration has implemented various measures to improve housing affordability, yet challenges remain, including the impact of tariffs on construction materials and ongoing worker shortages.

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Economists anticipate that business spending on equipment will continue to grow, marking a fourth consecutive quarter of expansion. The overall economy is projected to have grown at a 3% annualized rate in the fourth quarter, following a 4.4% growth rate in the previous quarter. The positive outlook is tempered by concerns regarding the manufacturing sector's reliance on automation and the ongoing effects of tariffs.

US core capital goods orders and shipments increase solidly in December

Critics argue that while manufacturing production has increased, the benefits have not been equitably distributed among workers. Rupkey highlighted that the productivity gains from automation may not translate into job growth, raising questions about the long-term viability of the manufacturing recovery.

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• “The ongoing tech investment boom is one of the key factors underlying our sanguine outlook for equipment spending this year,” — Bernard Yaros, Lead U.S. Economist, Oxford Economics

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• “Manufacturing production is higher than year-ago levels, but it was all done without additional workers,” — Christopher Rupkey, Chief Economist, FWDBONDS

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• “A more significant decline in mortgage rates would be needed to more meaningfully boost housing market activity,” — Gisela Young, Economist, Citigroup

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