TopNews

Economic Watch: Key Manufacturing Indicator Fails to Improve, Home Sales Slide

April 26, 2016

By Evan Lockridge

SHARING TOOLS        | Print Subscribe

Orders for durable goods recovered only somewhat in March following a big decline, and a key economic indicator within the measure failed to improve, adding to recent indications a slump in manufacturing is far from over.

According to a new Commerce Department report, U.S. orders for these items designed to last at least three years improved 0.8% in March following a downwardly revised 3.1% decline in February (originally reported as a 3% drop.)

Much of the improvement was driven by a more than 65% jump in orders for new defense aircraft. Excluding defense, new orders fell 1% in March.

Shipments of durable goods performed worse, falling 0.5% in March, following a 1% February decline.

Meantime, an indicator of future business investment, orders for non-defense capital goods excluding aircraft, was unchanged in March. The February figure was downwardly revised to a 2.7% decline from the month before.

Both overall new orders and non-defense capital goods orders fell far short of consensus estimates from economists polled by Reuters.

On a slightly more positive note, shipments of these “core capital goods” increased 0.3% in March following a 1.8% February drop. However, when this level is compared to a year ago, shipments are down 2.4% while new orders are 1.1% lower.

The disappointing durables report suggests a longstanding theme of the U.S. recovery remains firmly in place despite record low interest rates: businesses are sidelined, said Lindsey Piegza, chief economist at Stifel Fixed Income.

“With ample cash to put to work, corporations remain hesitant to invest in equipment, structures, and high-wage, full-time employees,” she said. “Amid lingering uncertainty surrounding the sustainability of the U.S. expansion, rising health care costs, and ample regulation, U.S. businesses are opting to maintain the restrictive capital investment strategies that have been in play for the past several years.”

Going forward, Piegza said, without further development in corporate America, the U.S. economy has “little hope of maintaining the current, stagnant 2% pace, let alone expanding beyond this disappointing growth rate.”

This follows a report from last week showing overall manufacturing in the U.S. failed to show any real improvement so far this month, according to the financial information services provider Markit. Its preliminary report showed while the sector is expanding, but only barely, the rate is slower than it was in March.

Housing Falls Amid Weak Western Performance

Another report shows new homes sales dropped slightly in March, but the decline was concentrated in just one part of the country, according to the Commerce Department.

The 1.5% drop in new single-family home sales marks the third straight monthly decline, putting the seasonally adjusted annual rate at 511,111 units, less than many analysts were expecting.

Despite this latest decline, sales in the first three months of the year are 1.3% higher than in the first three months of 2015, and the market remains on track to best last year’s total of just over half a million new home sales. Last year's level, in turn, was the highest level since 2007, according to the Wall Street Journal.

Regionally, March new home sales rose 18.5% in the Midwest and 5% in the South. Sales were unchanged in the Northeast and fell 23.6% in the West, where the supply of new homes remains tight.

“Though sales were flat this month, they are running modestly higher on a year-over-year basis,” said National Association of Homebuilders Chief Economist Robert Dietz. “We expect the sales pace to rise through 2016, given ongoing low mortgage interest rates and healthy job creation.”

Piegza warns that unlike before the Great Recession, when home building and sales were at record high levels, “the housing market will no longer be the driver of the economy, with a positive but limited contribution.”

Comment On This Story

Name:  
Email:  
Comment: (Maximum 2000 characters)  
Leave this field empty:
* Please note that every comment is moderated.

Newsletter

We offer e-newsletters that deliver targeted news and information for the entire fleet industry.

GotQuestions?
sponsored by
sponsor logo

ELDs and Telematics

Scott Sutarik from Geotab will answer your questions and challenges

View All
GotQuestions?

Sleeper Cab Power

Steve Carlson from Xantrex will answer your questions and challenges

View All