The Commerce Department’s report revealed a moderate increase in new orders for key U.S.-manufactured capital goods in March, while also revising the data for the prior month. This suggests that business spending on equipment likely remained subdued in the first quarter.
This publication comes just ahead of the release of the government’s advance estimate of gross domestic product (GDP) for the January-March quarter, with expectations of continued strong performance driven by a resilient labor market supporting consumer spending.
Conrad DeQuadros, senior economic advisor at Brean Capital, noted that the report is unlikely to significantly impact estimates for first-quarter GDP growth from a narrow accounting perspective.
He emphasized that while weakness in manufacturing does not appear to be worsening, neither are there clear signs of recovery.
The report indicated a 0.2% increase in non-defense capital goods orders excluding aircraft in March, aligning with economists’ expectations.
However, data for February was revised downward, showing a smaller increase of 0.4% instead of the initially reported 0.7%. Year-on-year, core capital goods orders rose by 0.6% in March.
Business spending on equipment has faced challenges following interest rate hikes by the Federal Reserve since March 2022 to combat inflation. Although expectations of rate cuts this year exist, the timing remains uncertain due to persistent inflationary pressures.
While Wall Street stocks traded higher, the dollar strengthened against major currencies, and U.S. Treasury prices declined.
Core capital goods shipments rebounded by 0.2% in March, following a decline of 0.6% in February. However, when adjusted for inflation, these shipments likely remained unchanged.
Non-defense capital goods orders surged by 5.4%, but shipments of these goods decreased by 1.5%.
Economists anticipate GDP to have grown at a 2.4% annualized rate in the first quarter, compared to a 3.4% pace in the previous quarter.
Business spending on equipment is expected to have contracted for the third consecutive quarter, despite signs of stabilization in the manufacturing sector.
Transportation drove the rise in orders, particularly civilian aircraft orders, which surged by 30.6% in March. Orders for motor vehicles and parts also increased by 2.1%.
The report underscores the ongoing weakness in investment, with limited prospects for significant improvement while credit conditions remain tight, particularly for smaller businesses.
