Fleet Management

Economic Watch: Equipment Spending Solid, New Homes Sales Brisk

April 27, 2017

By Evan Lockridge

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New orders for long-lasting durable goods increased less than expected during March, according to a new Commerce Department report, but business investment on equipment appears to be solid following the rut it was in for nearly a couple of years.

New orders increased 0.7% from the month before, the third straight monthly hike, following a upwardly revised 2.3% gain in February, but short of expectations of a 1.3% increase. The latest gain was driven by new transportation orders, up 2.4%. Excluding transportation, new orders fell 0.2%.

Shipments of durable goods improved 0.2%, the fourth increase in the past five months.

The report also showed new orders for non-defense capital goods minus aircraft, an indication of business investment, increased 0.4%. That followed a 1.1% rise in February.

Wells Fargo Securities Senior Economist Tim Quinlan pointed out that with this latest report, non-defense capital goods orders are running at a 6% percent three-month average annualized pace, compared to contracting as recently as this past summer.

“While that still looks sluggish relative to ‘soft’ indicators on the factory sector, including the ISM manufacturing index, both the hard and soft data indicate a decent pace of expansion for manufacturing and 50% business spending,” he said.

According to Quinlan, while overall orders were somewhat disappointing in March, shipments suggest business spending for the first quarter as a whole was solid.

“Real equipment spending has begun to claw its way back from the hole dug from late 2015 through most of last year, and today’s reading on shipments points to a strong increase in first quarter business spending in tomorrow’s [Friday’s] GDP report,” he said. “The slower pace of core capital goods orders, however, suggests a more moderate clip in the second quarter, but that business spending should continue to grow in the months ahead.”

New Home Sales Surging

Meanwhile, sales of newly built, single-family homes rose for the third straight month in March, increasing 5.8% from the upwardly revised level the month before to a seasonally adjusted annual rate of 621,000 units, according to a separate report from the Commerce Department.

The level of March home building is the best in eight months and beat a consensus estimate from analysts. When activity during the month is compared to the same time a year earlier, home building increased 15.6%

“The March sales numbers are the second highest on record since the Great Recession, which is especially encouraging considering the poor weather conditions throughout many parts of the country,” said National Association of Home Builders chief economist Robert Dietz. “With tight existing home inventory, rising household formations and continued job creation, we can expect further growth in new home sales moving forward.”

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