New orders for key U.S.-manufactured capital goods experienced a moderate increase in March, but data for the previous month was revised downward, indicating that business spending on equipment likely remained sluggish during the first quarter. Non-defense capital goods orders excluding aircraft, a widely followed indicator of business spending intentions, rose by 0.2% last month, according to the Commerce Department’s Census Bureau. However, February’s data was revised lower, showing that these core capital goods orders increased by 0.4% instead of the previously reported 0.7%. Economists’ expectations had projected a 0.2% gain in core capital goods orders.
Business spending on equipment has faced challenges in the wake of the Federal Reserve’s aggressive interest rate hikes, which have totaled 525 basis points since March 2022, as part of its efforts to combat inflation. While the central bank is anticipated to begin lowering rates this year, the timing of the first cut remains uncertain due to persistently high inflation amidst a resilient economy.
Core capital goods shipments rebounded by 0.2% after declining by 0.6% in February. Non-defense capital goods orders surged by 5.4%, but shipments of these goods dropped by 1.5% after a 2.4% increase in February. These goods’ shipments contribute to the calculation of the business spending on equipment component in the gross domestic product (GDP) report. The government is set to release its preliminary estimate of first-quarter GDP on Thursday. Economists polled by Reuters forecast a 2.4% annualized growth rate for GDP last quarter, compared to 3.4% in the October-December period. Business spending on equipment is projected to have shown a modest increase after two consecutive quarters of contraction.
Despite the sluggishness in business spending on equipment, manufacturing, which accounts for 10.4% of the economy, is exhibiting signs of recovery. Orders for durable goods, which range from household appliances to aircraft and have a lifespan of three years or more, jumped by 2.6% in March, following a downwardly revised 0.7% gain in February. Durable goods orders were initially reported to have increased by 1.3% in February. A recent survey by the Institute for Supply Management indicated that manufacturing activity expanded for the first time in 18 months during March.
