Durable goods orders exceed expectations

Durable goods orders jumped by 3.2% in March after declining by 1.2% in February. The headline reading beat expectations for a 0.7% increase; so did orders excluding transportation, which rose by a better-than-expected +0.3%.  Beneath the surface, the data tell a story of a factory sector that is downshifting in the present and into the future.

Core shipments, an input into current GDP calculations via the nonresidential fixed investment component, fell 0.4% in March. This follows a downwardly revised -0.4% for February from the originally reported -0.1%. Business spending is shaping up to be weaker than we expected and implies a larger drag on first quarter GDP, now estimated below 1%, which will be released tomorrow.  

Nondefense capital goods orders excluding aircraft, a proxy for future business investment, fell 0.4%.  What’s worse was February was revised sharply lower to -0.7% from -0.1%, an indication that business leaders are becoming more hesitant about the economic outlook this year.

Transportation orders, primarily aircraft, were the standout in the March report. Transportation orders rose 9.1% with nondefense aircraft orders surging by 78.4%.  That was largely due to Boeing orders, which rebounded to 60 planes from five in February.  Orders for motor vehicles and parts fell 0.1% and contracted in the first quarter as the industry continued to contend with labor shortages.  

Electrical equipment orders rose 0.8%, up five months in a row, which is benefiting from longer-term investment associated with the Inflation Reduction Act. Orders for computers and related products rose 1.9% after very mild gains earlier in the year. Machinery, primary metals and fabricated metals orders posted muted increases, rising 0.1% each in March, a broad reflection of the weaker business climate trajectory ahead.