New orders for key U.S.-manufactured capital goods increased moderately in March and data for the prior month was revised lower, suggesting that business spending on equipment likely remained weak in the first quarter.
The report from the Commerce Department on Wednesday was published ahead of the release on Thursday of the government’s advance estimate of gross domestic product for the January-March quarter. The economy is expected to have delivered another quarter of strong performance, thanks to a resilient labour market that is driving consumer spending.
“From a narrow GDP accounting perspective, there should be no material impact on estimates for tomorrow’s first-quarter GDP growth,” said Conrad DeQuadros, senior economic adviser at Brean Capital. “The positive take-away from this is that the report suggests that weakness in manufacturing does not appear to be intensifying, but neither are there signs of recovery.”
Non-defense capital goods orders excluding aircraft, a closely watched proxy for business spending plans, rose 0.2 per cent last month, the Commerce Department’s Census Bureau said. Data for February was revised lower to show these so-called core capital goods orders advancing 0.4 per cent instead of 0.7 per cent as previously reported.
March’s increase was in line with economists’ expectations. Core capital goods orders gained 0.6 per cent year-on-year in March.
Business spending on equipment has struggled in the aftermath of 525 basis points worth of interest rate hikes from the Federal Reserve since March 2022 to tame inflation. Though the U.S. central bank is expected to start lowering rates this year, the timing of the first cut is uncertain as inflation remains elevated amid the economy’s resilience. The Fed has kept its policy rate in the 5.25 per cent-5.50 per cent range since July.
Stocks on Wall Street were trading higher. The dollar rose against a basket of currencies. U.S. Treasury prices fell.
Core capital goods shipments rebounded 0.2 per cent after falling 0.6 per cent in February. These shipments likely were unchanged when adjusted for inflation.
Non-defense capital goods orders surged 5.4 per cent after rising 2.7 per cent in February. But shipments of these goods slumped 1.5 per cent after increasing by a downwardly revised 2.4 per cent in February.
Non-defense capital goods shipments, which go into the calculation of the business spending on equipment component in the gross domestic product report, were previously reported to have risen 2.6 per cent in February.
“While underlying capital goods shipments rose last quarter, they were probably little changed in real terms and the plunge in non-defense aircraft shipments suggests that overall business equipment investment declined,” said Stephen Brown, deputy chief North America economist at Capital Economics.
Economists polled by Reuters estimated that GDP increased at a 2.4 per cent annualized rate in the first quarter. The economy grew at a 3.4 per cent pace in the October-December quarter. Business spending on equipment likely contracted for a third straight quarter.
But manufacturing, which accounts for 10.4 per cent of the economy, is stabilizing. Orders for durable goods, items ranging from toasters to aircraft meant to last three years or more, rose 2.6 per cent in March after a downwardly revised 0.7 per cent advance in February.
An Institute for Supply Management survey this month showed manufacturing grew for the first time in 1-1/2 years in March.
Transportation dominated the rise in orders last month, with bookings shooting up 7.7 per cent after rising 1.8 per cent in February. They were lifted by a 30.6 per cent jump in civilian aircraft orders after increasing 15.6 per cent in the prior month.
Boeing reported on its website that it had received 113 orders for commercial aircraft, a surge from just 15 in February. Orders for motor vehicles and parts rose 2.1 per cent.
Orders for computers and electronic products increased 0.8 per cent last month, while those for electrical equipment, appliances and components gained 0.1 per cent.
Orders for fabricated metals rose 0.2 per cent. But orders for primary metals fell 0.5 per cent. Shipments of durable goods were unchanged as were inventories. Unfilled orders rebounded 0.4 per cent.
“The big picture here is that investment remains weak, and this is unlikely to change dramatically while credit conditions remain restrictive, especially for smaller firms,” said Oliver Allen, senior U.S. economist at Pantheon Macroeconomics.