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Durable Goods Orders Drop Again in February

March 24, 2016
Economist: “A lot of it is a function of businesses not being very confident about the outlook. Businesses who export are potentially facing weaker demand, and ... the policy landscape is very uncertain right now.”

Orders for durable goods fell in February for the third time in four months, reflecting a broad-based slowdown that underscores lingering softness in U.S. capital investment.

Bookings for goods and materials meant to last at least three years declined 2.8% after a 4.2% gain that was less than previously reported, Commerce Department data showed Thursday. Bookings for non-military capital goods excluding aircraft dropped 1.8%, more than estimated.

Limited progress by companies in bringing inventories more in line with sales has led to thinner order books at the nation’s factories. Tepid global markets, the dollar’s advance and a slump in commodity prices also have led overseas customers to pare bookings as manufacturing remains a weak spot of the economy.

“A lot of it is a function of businesses not being very confident about the outlook,” said Stephen Stanley, chief economist at Amherst Pierpont Securities LLC in New York, who correctly projected the drop in durable goods orders. “That’s a combination of a few things — businesses who export are potentially facing weaker demand, and another important element of it is the policy landscape is very uncertain right now.”

The median forecast of 74 economists surveyed by Bloomberg called for a 3% decrease in overall bookings, with estimates ranging from a 7% plunge to a 0.5% gain.

The decline in orders for non-defense capital goods excluding aircraft, a proxy for future business investment in items such as computers, engines and communications gear, exceeded the median forecast for a 0.5% decrease.

Shipments of those goods, used in calculating gross domestic product, unexpectedly declined 1.1% after a revised 1.3% drop the previous month. January sales were previously reported as down 0.4%. “It looks like we’re definitely on pace for a negative quarter for business equipment spending unfortunately,” Stanley said.

The report also showed a 27.1% decrease in bookings for commercial aircraft. Boeing Co., the Chicago-based aerospace company, said it received two orders in February, down from 68 in the prior month. Deliveries climbed to 56 from 49.Orders also weakened for fabricated metals, machinery and communications gear. Only bookings for motor vehicles and computers rose in February.

Demand for durables excluding transportation equipment orders that are volatile on a month-to-month basis, fell 1%. They were projected to fall 0.3%, according to the Bloomberg survey median.

The figures are at odds with other recent reports that have shown the worst of the declines at U.S. factories may be over. Manufacturing output rose in February for a second month, boosted by demand for business equipment, according to Federal Reserve data.

At the same time, weakness persists in the nation’s oil patch and the global economy remains sluggish. Energy exploration and production firms are curtailing investment, while other industries are reconsidering expansion as overseas markets struggle to improve.

By Shobhana Chandra

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