Core Capital Goods Shipments Hit Record $86 Billion in September

American factories shipped a record $86 billion of core capital goods in September, up 11.6% from a year earlier. The Kobeissi Letter reported the fastest annual growth since July 2021. The figures underpin the report's description of the biggest business investment boom in 15 years.

The category covers machinery, computers and equipment that companies buy to expand. It excludes defense hardware and aircraft. The three-month advance ran at a 16.5% annualized rate, the fastest pace since 2011 apart from the rebound that followed the pandemic.

What is driving the factory surge?

Orders for computers, servers, storage devices and related equipment jumped 27% year over year. That was the strongest gain since January 1997, when the dot-com expansion gathered pace. The figures show how concentrated the spending has become. A small group of buyers now supports a large share of U.S. growth.

Government data confirm the same shift across the wider economy:

• Real gross domestic product grew at a 3.4% annualized rate in the third quarter.
• Gross private investment rose 19.4%, its biggest jump since early 2025.
• Private nonresidential fixed investment reached a record $4.95 trillion annual rate, up 12.1% from a year earlier.

The investment measure tracks business spending on structures, equipment and software.

Corporate profits ran at a $4.7 trillion annual rate in the second quarter, up 20.8% from a year earlier, leaving companies with cash for the buildout.

Estimates discussed on 24/7 Wall St.'s AI Investor Podcast put hyperscaler data center spending at $845 billion this year and close to $1.4 trillion in 2027. Those figures are estimates, not confirmed budgets. They underscore the scale of demand facing equipment suppliers.

Can the supply chain keep pace?

Equipment makers cannot build fast enough. The unfilled order backlog has grown for more than a year, signaling that equipment demand continues to run ahead of production. That backlog can sustain electrical, cooling and networking suppliers far beyond Silicon Valley.

Trade data show why the boom does not translate evenly into domestic output. Imports rose 19.7% in the third quarter, while exports fell 5.7%. Each imported server rack subtracts from the domestic GDP gain.

What could break the boom?

Tech stocks recorded their biggest selloff since Covid amid fears that the data center boom could end early, Fortune reported. Morningstar warned that hyperscalers' AI investment will outpace near-term earnings.

Voters are already pushing back. In the midterms, voters approved restrictions in nearly every data center ballot measure. Hardwood, North Dakota, was the notable exception.

Power supply sets another ceiling. The Energy Department projects data centers could use up to 12% of U.S. electricity by 2028. Retail electricity prices have risen faster than inflation since 2022.

The main risk centers on weak returns from AI projects, because any pullback in those budgets could quickly reverse the equipment orders now supporting economic growth. Companies could cut spending if returns disappoint, borrowing costs rise or computing capacity exceeds demand. Such a pullback would turn current business spending into an economic drag.

What will signal whether the boom continues?

Two numbers will guide 2027. First, watch unfilled orders in the next durable goods reports. A shrinking backlog would provide the earliest sign that buyers are pulling back, ahead of any change in cloud company budgets.

Second, watch capital spending guidance from the largest cloud companies in fourth-quarter earnings reports early next year. Higher budgets would give the cycle room to run. Flat budgets, combined with local opposition and power shortages, would suggest September's record shipments marked the peak.

The coming test is whether suppliers can add capacity fast enough: if backlogs shrink and cloud budgets stay flat while power shortages and local opposition persist, September's record shipments may prove to be the high point.