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Transportation Equipment Drives April’s Rise in Durable Goods

May 27, 2014
Transportation equipment led the increase, rising 2.3% in the third straight monthly gain. In April the gain was entirely due to a 13.1% increase in orders for defense aircraft and parts.

WASHINGTON -- New orders for U.S. durable goods rose for a third consecutive month in April, official data released Tuesday showed, pointing to momentum in the manufacturing sector.

Durable goods orders rose 0.8% in April, the Commerce Department said. The gain was unexpected; analysts on average had forecast they would fall 1.3%.

The department sharply revised upward the March increase, to 3.6%, in orders for durable goods, products expected to last at least several years, like cars, computers and ships. The previous estimate was 2.6%.

Excluding transportation, which can be volatile month-over-month, new orders for durable goods in April rose 0.1%.

Transportation equipment led the increase, rising 2.3% in the third straight monthly gain. In April the gain was entirely due to a 13.1% increase in orders for defense aircraft and parts.

“The growth in April’s new orders was entirely due to large defense contracts which have very long lead times and thus do not reflect likely activity this year," said Daniel J. Meckstroth, chief economist for the Manufacturers Alliance for Productivity and Innovation (MAPI). Having said that, defense capital goods contracting has exploded in early 2014, following the Federal budget agreement, up 21.7% this year versus last. Excluding defense, new orders fell 0.8% in April.

“The most reliable measure of business equipment order activity is nondefense capital goods orders excluding aircraft,” he explained. “The measure fell 1.2% in April, but this follows extraordinarily strong 4.7% growth in March. Year-to-date nondefense capital goods orders excluding aircraft are up 3.1%—a modest pace of growth.

“Business equipment order activity should pick up in the coming months,” Meckstroth predicted. “The weather has returned to normal and much of the federal budget uncertainty has dissipated. Corporate profits are growing, firms are sitting on lots of cash, and banks are easing lending conditions. MAPI expects manufacturers to lead the acceleration in capital goods because capacity utilization is relatively high in manufacturing and the supply chains for energy, housing, and transportation are rapidly reviving.”

Orders for non-defense aircraft orders fell 4.1% and motor vehicle orders fell 1%.

"The new data suggest the trend in orders might be breaking to the upside after a flat 2013," said Ian Shepherdson of Pantheon Macroeconomics.

Compared with a year ago, new durable goods orders increased 4.9% in April. Excluding transportation, they were up 3.3%.

Copyright Agence France-Presse, 2014

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