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Business and Consumers Agree, Now is No Time to Invest

Posted by Joseph Trevisani on Mar 24, 2016 1:58:58 PM

Orders for durable goods fell in February with consumers and business cutting back on purchases for the third time in the last four months, putting a crimp in U.S. growth prospects for the first quarter. 

New placements for investment and consumption goods designed to last at least three years fell 2.8 percent and the January order surge, which had been the strongest in a year was revised lower to 4.2 percent from 4.7 percent, according to the Commerce Department today.  

Orders declined in every category except computers and related products and motor vehicles. Economists had forecast a 3.0 percent decline for February.

Booking for non-defense capital goods excluding aircraft and parts, known as ‘core capital goods' and a common proxy for business investment, fell 1.8 percent, more than triple the -0.5 prediction. Here also the prior month saw a negative revision, falling to 3.1 percent from 3.4 percent. 

Durable goods orders excluding the transportation sector, sometimes called 'core durable goods', slipped 1.0 percent, more than three times the -0.3 percent forecast.  The January result was dropped to a gain of 1.2 percent from its original 1.7 percent.

Annually these core orders were 0.5 percent lower in February, the 13th straight monthly decline. This is the longest negative string in the history of the series, which goes back almost 60 years to 1958, without a recession. 

Shipments for the 'core capital goods' above, a close approximation of the business spending component of gross national product, fell 1.1 percent in February, a large miss of the 0.3 percent forecast. The January number plunged on revision to -1.3 percent from -0.4 percent.

Citing these figures the Atlanta Fed GDPNow track of first quarter GDP was dropped to 1.4 percent annually from 1.9 percent.  As recently as a month ago the Atlanta bank was predicting a 2.5 percent first quarter expansion. 

Weak U.S. and foreign sales have led companies to cut back on orders as unsold inventories have mounted. In January the total inventory to sales ratio for U.S businesses rose to 1.4, the highest it has been since June 2009, the last month of the recession.

 American manufacturing has been plagued by falling exports orders for more than a year as the dollar has gained in currency markets, making American goods more costly for foreign buyers.

The Institute for Supply Management’s purchasing managers’ index for U.S. factories was 49.5 in February. That is the sixth month in a row that this widely followed measure has been at or below the 50 demarcation between contraction and expansion. However, in a small positive development the index has climbed 1.5 points from its cycle low of 48.0 in December.  

The two month gain in the ISM numbers, perhaps presaging a recovery in factor output, is supported by the manufacturing category of overall U.S industrial production.

Total industrial production fell 0.49 percent in February, the fifth decline in the last six months. But manufacturing rose 0.2 percent following a 0.5 percent jump in January.  It was the first back to back gain since March and April last year. 

The durable goods report  found a 6.2 percent drop in overall transportation equipment orders, headlined by a 27.1 percent shrinkage in new commercial aircraft orders.  Boeing Company, the Chicago aerospace company, said it received two orders in February, down from 68 in the prior month. Deliveries of its airliners climbed to 56 from 49.

Orders also slumped for fabricated metals, down 1.2 percent, machine tools and machinery off 2.6 percent and communications equipment down 2.3 percent.  Orders for motor vehicles of all types rose 1.2 percent and computers and related products climbed 1.3 percent.

Joseph Trevisani

Chief Market Strategist

WorldWideMarkets Online Trading

Charts: Bloomberg

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