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Orders For U.S. Durable Goods Fall 5.7 Pct. In March

Fri, 04/26/2013 - 12:01pm

WASHINGTON (AP) — Orders for long-lasting U.S. factory goods fell in March by the most in seven months. The drop reflected a steep decline in commercial aircraft demand and little growth in orders that signal future business investment.

The Commerce Department said Wednesday that orders for durable goods declined 5.7 percent in March. That followed a 4.3 percent gain in February, which was revised lower.

Weaker economies overseas and the impact of across-the-board government spending cuts have made businesses more cautious. That's reduced demand for manufactured goods. Spending on defense equipment also fell sharply last month.

Durable goods are items expected to last at least three years. Orders for durable goods tend to fluctuate sharply from month to month and economists cautioned against reading too much into one monthly decline.

A measure of business investment plans, which include industrial machinery and computers, ticked up 0.2 percent last month. Economists pay close attention to so-called core capital goods orders because they strip out more volatile defense and aircraft orders.

Increases last month in both orders and shipments of core capital goods suggest businesses spent more on equipment and software in the January-March quarter. That likely contributed to economic growth in the first quarter.

Still, most of the quarterly gain reflected a huge increase in January. Orders fell sharply in February and rose only slightly last month. That indicates businesses may be spending less on equipment in the April-June quarter, economists said.

"This doesn't look like we're entering some kind of downward spiral," said Jonathan Basile, an economist at Credit Suisse. "This seems like a downshift from stronger growth."

The overall decline in durable goods was exacerbated by a 48.2 percent fall in commercial aircraft orders. Boeing Co. reported that it received orders for only 39 aircraft, compared to 179 in the previous month.

Orders for defense aircraft and other military goods also dropped. That likely reflects the impact of automatic government spending cuts that began on March 1. Joseph LaVorgna, an economist at Deutsche Bank, noted that orders for defense equipment fell to their lowest level in over seven years.

Excluding aircraft and transportations demand, orders dropped 1.4 percent, the second straight decline.

Demand fell in most types of goods. Orders dropped for metals such as steel and aluminum, metal parts, electrical equipment and appliances, and defense aircraft. Orders increased for computers and communications equipment.

Many economies overseas are also sluggish, reducing exports. China's manufacturers grew at a slower pace in March, according to a survey released Monday, as export orders and employment declined. Europe's economy has been in recession.

Rockwell Automation, which makes machinery and software for mostly industrial customers, said Wednesday that its first-quarter sales in Asia dropped 16 percent compared with the same period a year earlier. Demand slowed in China and India.

Sales ticked up just 2 percent in the United States. Ted Crandall, Rockwell's chief financial officer, said ongoing uncertainty about U.S. budget policies "may have caused some customers to hold back a little bit on capital spending."

The U.S. economy likely grew at a healthy 3.1 percent annual rate in the first quarter, up from only a 0.4 percent rate in the fourth quarter. The Commerce Department will release its first estimate for January-March growth on Friday.

But many economists expect growth has begun to slow to a rate of 2 percent or less in the current April-June quarter.

Higher Social Security taxes have reduced Americans' take-home pay this year. That's starting to limit their spending power. The government spending cuts will also likely weigh on growth.

Other reports suggest that manufacturing is starting to weaken after showing signs of strength over the winter. Strong auto production hasn't been enough to offset broader slowdowns in other industries.

Factory output slipped in March, according to a Federal Reserve report last week. And a survey of purchasing managers earlier this month found that manufacturing expanded at a slower pace in March compared with February. The Institute for Supply Management's survey showed that new orders and production declined sharply.


Analysis from Cliff Waldman, Senior Economist for the Manufacturers Alliance for Productivity and Innovation (MAPI):

“However you look at it, the March report on orders for long-lasting (durable) goods is disturbingly weak and consistent with recent data that suggest a significant slowdown in the pace of U.S. economic growth,” said Cliff Waldman, Senior Economist for the Manufacturers Alliance for Productivity and Innovation (MAPI). “Total new orders fell by a sharp 5.7 percent, and are down 0.1 percent on a year-over-year, year-to-date basis.  Removing the volatile transportation component, new orders fell by 1.4 percent on the heels of a 1.7 percent decline in February.  Weakness in U.S. manufacturing activity, shown in recent survey and output reports, was clearly depicted in the March durable goods data, with orders showing measurable declines in the primary metals, fabricated metals, and machinery sectors that play important roles in a wide range of domestic and global manufacturing supply chains.

“New orders for capital goods, excluding aircraft, a well-accepted proxy for business equipment spending, reflect the nervousness and uncertainty that business decision makers face in the U.S. and global economic climates,” Waldman added. “This metric rose by a modest 0.2 percent in March after a sharp drop of 4.8 percent in February.  For the year it is down by 0.5 percent, something that we should not see in a healthy economic recovery.  Economic and policy uncertainty has been a persistent characteristic of the post-crisis environment and has prevented a robust and durable recovery in business investment, a negative for U.S. manufacturers that depend on capital goods demand as a key source of profitability.

“The world economy has fortunately taken a few steps back from the brink as central banks and other policy makers have lessened the sense of impending financial contagion,” Waldman noted. “The sharp slowdown in emerging market growth does appear to have bottomed.  But weakness in major regions, notably the Eurozone and China, seems to persist and, once again, a promising start to the year for the U.S. economy has evolved into a worrisome slowdown.  Most likely, weak but positive growth will continue in the U.S. and global economies.  That should keep U.S. factory sector output growth positive but muted.  Nonetheless, manufacturing executives and policymakers alike need to be well aware of the continuing challenges of this difficult period in global economic history.”

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