An advance report shows both new orders and shipments for manufactured durable goods declined in April, according to the U.S. Commerce Department, but a key indicator increased for the second consecutive month.

The 0.5% drop in new orders from the month before follows an upwardly revised 5.1% increase in March from 4.4%. Durable goods orders are down 2.1% over the past 12 months.

New orders for transportation equipment drove the decline, falling 2.5%, the second drop out of the last three months.

Excluding transportation, new orders increased 0.5%. Excluding defense the gain was 0.2%.

Nondefense capital orders excluding aircraft, an indicator of future business investment, increased 1% in April from an upwardly revised March increase of 1.5%. This marks the second straight monthly hike.

"Businesses remain hesitant to invest in structures, equipment, and high-wage full-time employees."

Overall shipments of manufactured durable goods fell 0.1% in April from March, when it increased 1.5% from the month before. However, shipments for nondefense capital goods, excluding aircraft, increased 0.8% in April after increasing 1% in March.

“Parsing out monthly volatility, business investment remains tepid, with annual spending firm in negative territory for the past four months,” said Sterne Agee Chief Economist Lindsey Piegza. “Although the pace of the decline has slowed, the lingering theme remains well intact as we move further into the second quarter: Businesses remain hesitant to invest in structures, equipment, and high-wage full-time employees. Without ample investment, businesses will stagnate and hiring will moderate, continuing to keep wage pressures at bay.”

Services expand more slowly

Meantime a first report on the U.S. service sector for May shows it continues expanding, but at a slower pace than in April, according to the financial information services provider Markit.

At 56.4, down from 57.4 in April, the seasonally adjusted Markit Flash U.S. Services Purchasing Managers Index showed the least marked rate of output growth since January.

The latest reading was still well above the neutral 50 threshold.

Softer overall business activity growth reflected a weaker upturn in incoming new work during May, according to the report. The latest rise in new business intakes was the slowest since the start of 2015.

“The U.S. economy looks to have grown at a healthy pace in May, providing further evidence that the rate of expansion has picked up from the weak start to the year."

“The U.S. economy looks to have grown at a healthy pace in May, providing further evidence that the rate of expansion has picked up from the weak start to the year,” said Chris Williamson, chief economist at Markit. “The resilience of domestic demand in particular helped encourage companies to take on extra staff at the fastest rate for almost a year."

He said the survey data put the economy on course to rebound in the second quarter, with gross domestic product rising at an annualized rate of around 3%, with non-farm payroll growth continuing to run around the 200,000 level per month.

“Such keen hiring and robust economic growth inevitably tips the scales in favor of the Federal Reserve hiking rates later this year rather than waiting until 2016,” Williamson said. “However, the rate of expansion remains below the buoyant rates seen throughout much of last year, as slower growth of service activity has been accompanied by a slowdown in the manufacturing sector, which has seen exporters hit by the stronger dollar. Policymakers will be eager to see if this slower growth trend develops further over the summer months before risking any tightening of policy.”

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Evan Lockridge

Evan Lockridge

Former Business Contributing Editor

Trucking journalist since 1990, in the news business since early ‘80s.

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