Durable Goods Demand Up 4% in March
Bookings for nonmilitary capital goods excluding aircraft, a proxy for future corporate spending on new equipment, dropped 0.5%, data from the U.S. Commerce Department showed April 24.
Oil and mining companies, such as Halliburton Co,. are trimming investment, and other manufacturers are struggling from the combined onslaught of a stronger dollar and weak global markets that is depressing exports. At the same time, hiring gains will help sustain demand for long-lasting goods, such as vehicles, and keep factories running.
“It’s reflective of the impact of a stronger dollar that tends to hit larger firms and exporters,” said Scott Brown, chief economist at Raymond James Financial Inc. in St. Petersburg, Florida. Brown is the second-best forecaster of the capital spending data over the past two years, according to data compiled by Bloomberg.
Estimates for total durable goods in the Bloomberg News survey ranged from a drop of 1.5% to a gain of 2.3%.
Nondefense capital goods orders excluding planes were projected to rise 0.3%, according to the Bloomberg survey median. The February reading was revised to show a 2.2% slump, the biggest drop since July 2013. The decrease was twice as big as the 1.1% decline previously reported.
The seventh consecutive drop matches a string of declines that ended in September 2012, which was the longest on record dating to 1992.
The durable goods data were boosted by a 31% jump in bookings for nonmilitary aircraft, according to the Commerce Department’s report. That ran counter to figures released by Boeing Co., the Chicago-based aerospace firm, which showed it received 39 orders for aircraft in March, down from 72 in the prior month. The figures don’t always correspond with the government statistics.
Orders for automobiles increased 5.4% last month, the most since July.
Excluding transportation equipment, orders declined 0.2%, after a 1.3% drop a month earlier. They were projected to increase 0.3%, according to the Bloomberg survey median.
Shipments for nondefense capital goods excluding aircraft, used in calculating gross domestic product, decreased 0.4% after rising 0.1%, less than previously estimated.
The plunge in oil prices since mid-2014 has led to cutbacks in drilling. Halliburton, the world’s second-biggest provider of oil field services, said it expects to reduce capital spending by 15% this year and accelerated the pace of job cuts ahead of its takeover of Baker Hughes Inc.
“Because of the lack of available work driven by the rig-count decline and the resulting overcapacity in available equipment chasing the work that remains, this is an extremely competitive market,” Jeff Miller, president of the Houston-based company, said on an earnings conference call April 20. “Outside of North America, the international markets were more resilient than the domestic market but were not immune to the impacts of the lower commodity price environment.”
Exports have fallen four months in a row as the greenback climbed more than 20% since the end of June and growth overseas remains uneven.
In contrast, automobile demand remains a bright spot for factories. Sales of cars and light trucks rose to a 17.05 million annualized rate in March from 16.2 million the previous month, according to Ward’s Automotive Group.
The labor market is helping to sustain consumer spending, the biggest part of the economy. While payrolls rose by 126,000 workers in March, the smaller-than-forecast advance followed a 12-month string of gains of 200,000 or more, the longest such stretch since 1995. The U.S. jobless rate held at 5.5%, the lowest level since May 2008, and wages improved.
Some companies are detecting gains in parts of the economy. Caterpillar Inc., the largest construction equipment maker, raised its full-year earnings forecast after North American sales improved and its energy and transportation business sold a greater volume of machinery. Although below prior peaks, activity in construction is improving, it said.
