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Durable Goods Orders Slip in March, GDP Estimate Drops

Posted by Joseph Trevisani on Apr 27, 2017 12:45:38 PM

New orders for American made durable goods from consumers and businesses rose less than anticipated suggesting that the economic growth remained muted in the final month of the first quarter. 

Placements for all items designed to last more than three years rose 0.7 percent in March, reported the Commerce Department on Thursday. This was less than the 1.2 percent median forecast. The prior month’s numbers were revised substantially higher to 2.3 percent from 1.8 percent. 

Non-defense capital goods excluding aircraft, the oft-used proxy for business investment, increased 0.2 percent last month, less than half the 0.5 percent prediction and February’s result was revised up to 0.1 percent from -0.1 percent.  Shipments of these so-called 'core capital goods' jumped 0.4 percent in March following a 1.1 percent gain in February. These delivery numbers are incorporated into the government’s gross domestic product calculation. 

Estimates for annualized U.S. GDP growth in the first quarter have been falling for two months. Today's forecast from the Atlanta Fed's GDPNow program was 0.2 percent following yesterday’s revised retail trade numbers from the Census Bureau and Thursday's disappointing wholesale inventory figures and durable goods orders.  The estimate in the Reuters survey of economists calls for 1.2 percent growth.  In early February the GDPNow estimate was over 3.4 percent. 

The Commerce Department will release the advance estimate for first quarter GDP tomorrow at 8:30 am EDT. 

Businesses may be anticipating tax and regulatory reform legislation, particularly the reduction the corporate tax rate from 35 percent to 15 percent proposed in the President’s budget. A  stimulus spending program and an overall of Obamacare by the Trump administration are also expected to improve economic growth over the next three quarters. 

Manufacturing comprises about 12 percent of U.S. economic activity. Despite the U.S. economy’s 70 percent dependence on consumer spending, it has been investment in the energy sector, primarily shale oil that has provided recent strength. 

Baker Hughes, the oil field service company, reported that there were 668 active oil rigs last week, the most in two years. U.S. drillers have added capacity for 14 straight weeks and production from U.S. shale fields in May is expected to show its largest monthly gain in more than two years.   North American shale producers have dramatically reduced their well-head costs over the last three years.  The profit threshold for many producers is now estimated to be below $40 a barrel.

Durable goods orders ex-transport, that is without civilian aircraft purchases, in practice the new order book of Boeing Company of Chicago, fell 0.2 percent in March, well below the 0.4 percent forecast. February orders were adjusted to 0.7 percent from 0.5 percent.   Civilian aircraft orders jumped 7.0 percent in March.

Bookings for new machinery slipped 0.2 percent last month, but shipments rose 0.7 percent. Orders for smelted and refined metals rose in March as did their deliveries. Electrical equipment and appliance orders and shipments also increased last month. Orders for fabricated metal products, computers and electronic goods decreased. 

Joseph Trevisani

Chief Market Strategist

WorldWideMarkets Online Trading

Charts: Thomson/Reuters

 

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