Orders for Business Equipment Unexpectedly Fell in January
Orders for business equipment at U.S. factories unexpectedly fell for a second month, a sign that demand is cooling from its hot pace in recent quarters, a Commerce Department report showed Feb. 27.
Highlights of Durable Goods for January
• Non-military capital goods orders excluding aircraft declined 0.2% (estimated up 0.5%) after falling 0.6% the prior month.
• Shipments of those goods, which are used to calculate gross domestic product, rose 0.1% (est. up 0.3%) after an upwardly revised 0.7% increase.
• Bookings for all durable goods, items meant to last at least three years, dropped 3.7% (est. 2% decline) following a downwardly revised 2.6% increase.
• Excluding transportation-equipment demand, which is volatile, orders fell 0.3% (est. up 0.4%) after rising 0.7%.
Key Takeaways
The figures represented the first back-to-back drops in orders for business equipment since April-May 2016. The latest data included a 0.4% decline in orders for machinery, and a 0.8% drop in bookings for electrical equipment, appliances and components.
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Total durable-goods demand last month was dragged down by bookings for commercial aircraft, which fell 28.4% in January after advancing 16.1% a month earlier. Boeing Co. has reported that it received 28 aircraft orders in January, down from 265 for December. Bookings for defense aircraft were down 45.6% following an increase of similar magnitude in December.
Even with the decline, capital investment is likely to be supported in 2018 by the Republican-backed tax legislation signed by President Donald Trump in December. The law generally reduces taxes for businesses and individuals, with the Trump administration and lawmakers hoping the effects show in corporate and consumer spending.
Business-equipment investment in the U.S. rose at an 11.4% annualized rate in the fourth quarter, the fastest in three years. The Feb. 27 figures may partly reflect harsh weather in some parts of the U.S.
What Bloomberg Economists Say
Headline durable goods orders dropped sharply in January in line with a significant reduction in Boeing orders. The negative surprise, however, came from weakness in core capital goods orders, which contradicts the recent survey data and is expected to reverse in the coming months as businesses remain extremely optimistic about the outlook. Weakness in core capital orders appears as just a temporary breather on the back of robust performance in the fourth quarter.
— Yelena Shulyatyeva and Carl Riccadonna, Bloomberg Economics
Other Details
• Orders for motor vehicles and parts rose 0.1%.
• Bookings for fabricated metal products advanced 0.5%.
• Durable-goods inventories rose 0.3%.
• Defense capital-goods orders decreased 26.3%, most in a year.
With assistance by Chris Middleton
