Why December Core Capital Goods Surge Signals a 2026 Growth Spike—Don’t Miss the AI‑Fuelled Upswing

Key Takeaways

• Core capital goods orders rose 0.6% in December, beating forecasts and marking a 3.5% YoY gain.
• The AI‑driven data‑center boom is the primary catalyst behind the surge.
• Tariff‑related headwinds are easing, setting the stage for a broader manufacturing rebound in 2024‑25.
• Housing starts rebound, but supply constraints keep price pressures high.
• Investors should weigh a bullish 2026 growth narrative against lingering inflation and policy uncertainty.

You ignored the December capital‑goods numbers, and that could cost you a multi‑year upside.

Why the December Core Capital Goods Spike Matters for Your Portfolio

When the Commerce Department released the December core capital‑goods report, most traders were looking for Fed cues, not a manufacturing signal. Instead, the data revealed a 0.6% month‑over‑month rise—well above the 0.4% consensus—driven largely by AI‑related equipment purchases. This isn’t a one‑off blip; it’s a leading indicator that business‑investment momentum is shifting from the tech‑only bubble of early 2023 back into the broader industrial base.

Sector Trends: AI Investment Fuels a Manufacturing Renaissance

Core capital goods exclude defense and aircraft, making them a clean proxy for private‑sector equipment spending. The 3.5% year‑on‑year increase signals that firms are finally allocating capital to physical assets after the AI hype of 2022‑23. Data‑center expansion alone accounted for a 3.0% surge in computer and electronic product orders. That growth spills over to fabricated metal, primary metals, and electrical equipment, all of which posted double‑digit month‑over‑month gains.

Historically, a sustained rise in core capital‑goods orders precedes a 12‑ to 18‑month expansion in GDP. For example, the 2017‑18 period saw a 0.7% monthly rise that foreshadowed a 2.9% annual GDP growth in 2019. By the same token, the current uptick could lay the groundwork for a 3.0% annualized Q4 growth and a stronger 2026 outlook, as economists now project.

Competitor Analysis: Winners and Losers in the New Landscape

While AI‑centric firms like Nvidia and AMD continue to capture headline attention, traditional manufacturers are reaping the secondary benefits. Companies such as Cummins (industrial engines), Deere & Company (agricultural machinery), and General Electric (power and aviation) are positioned to see order‑book expansions as AI‑driven automation upgrades require robust hardware.

On the flip side, sectors still throttled by tariff pressures—particularly those relying on imported raw materials like aluminum and specialty steel—remain vulnerable. Boeing’s modest 175 aircraft orders in December highlight that non‑defense aircraft still struggle, even as overall capital‑goods health improves.

Historical Context: The AI‑Investment Cycle Repeats

Every major technological wave—from the dot‑com boom to the 2010s cloud surge—has produced a lagging “equipment refresh” period. In 2000, after the internet bubble burst, data‑center builders saw a 2.2% rise in equipment orders that eventually powered a 1.8% GDP lift in 2002. The current AI wave mirrors that pattern: after a steep rise in software and cloud spend in 2022‑23, firms are now buying the physical servers, cooling systems, and networking gear needed to sustain AI workloads.

Technical Corner: Decoding Core Capital Goods, Durable Goods, and Tariffs

Core capital goods are non‑defense equipment orders, excluding aircraft, and are used as a leading indicator of business investment. Durable goods encompass items with a lifespan of three years or more, ranging from appliances to airplanes; they are a lagging measure of economic health. Tariffs are taxes on imported goods that raise input costs for U.S. manufacturers; recent easing of tariff uncertainty is expected to revive sectors that previously faced price squeezes.

Impact of Housing Market Dynamics on the Macro Picture

Housing starts rose 4.1% in December, lifting overall construction activity to a six‑month high. Yet permits slipped 1.7%, and builder sentiment remains poor due to high labor and material costs. The mismatch between starts and permits suggests a short‑term construction rally, but a longer‑term supply gap could keep home prices elevated, feeding into broader inflation pressures.

Investor Playbook: Bull vs. Bear Cases for 2025‑26

Bull Case: If AI‑driven equipment spending continues at a 0.5%‑plus monthly pace, the manufacturing sector could add 0.5%‑1% to annual GDP growth each year through 2026. Companies with exposure to data‑center hardware, industrial automation, and high‑margin metal fabrication would outperform. Look for earnings upgrades at Cummins, Deere, and GE, and consider thematic ETFs focused on AI‑enabled industrials.

Bear Case: Persistent tariff friction, a possible Fed rate hike cycle, and lagging housing affordability could blunt the momentum. A sudden slowdown in AI capital spending—perhaps triggered by a semiconductor supply shock—would immediately depress core capital‑goods orders. In that scenario, defensive sectors like utilities and consumer staples would preserve capital, while high‑beta industrials could see earnings compression.

Bottom Line: Position for the 2026 Upswing While Guarding Against Headwinds

The December core capital‑goods data is more than a monthly surprise; it’s a forward‑looking signal that businesses are committing to the physical infrastructure needed for the next wave of AI productivity. Investors who align portfolios with the emerging industrial winners, while keeping a hedge against policy‑driven inflation, stand to capture the upside of a 2026 growth surge.