Orders for non-defense capital goods orders, which are a key gauge of capital spending, fell 1.5% in April following a 1.4% decline in March. Shipments of these goods, which are used as source data for GDP, fell 2.1% following a drop of 1.7%. The current level is about 12% below the first quarter's average, indicating another decline in capital spending for the current quarter; this would mark the sixth quarter in a row. It is worth noting, however, that the past two quarters saw declines of 33.8% and 28.1% respectively, indicating that the rate of decline in capital spending is slowing.
No significant increase in capex is likely soon, because companies have ample spare capacity. Capital deepening will occur mostly in cases where strong companies seek to boost market share or where investments will help lower costs and raise productivity. No new productive capacity is needed relative to current levels of demand.
