Orders for long-lasting manufactured durable goods surged in April, but the hike is a bit deceptive if you don’t dig below the surface of Commerce Department numbers released May 26.
Orders for durable goods (items designed to last at least three years) were up 3.4% from the month before, and that was based on an upwardly revised 1.9% March increase. However, the increase was driven by orders for civilian aircraft, which spiked 64.9% in April. Meanwhile, an indicator of future business investment fell and is below levels from a year earlier.
If you take out those aircraft numbers, orders for nondefense capital goods actuall dropped 0.8% in April from March, the third straight monthly drop. (Even though March numbers were upwardly revised, they still dropped 0.1%.) These orders are also down 4.1% in the first four months of this year compared to the same time in 2015. Year-over-year business investment dropped 6.7%, the 14th month of declines in the past 16 months.
Despite optimism that weakness early on was isolated to the first quarter, it appears the barriers to business investment have carried over into the second quarter of this year, said Stifel Fixed Income Chief Economist Lindsey Piegza.
“The persistence of uncertainty, as well as rising regulatory and cost burdens, continue to keep business investment sidelined,” she said. “At this point, corporations remain hesitant to invest in equipment, structures, and certainly high-wage, full-time employees.”
Going forward, she expects that “without ample development and innovation resulting in a stronger pace of hiring, there is little hope of maintaining the current moderate trend of growth and employment, let alone gaining momentum from here.”
Thursday’s report follows one earlier in the week from the financial information services provider Markit showing the entire U.S. manufacturing sector moved closer to contracting in May.
A Federal Reserve report for April, released earlier in May, showed the manufacturing component of U.S. industrial output increased slightly during April, but was not broad-based. Also an early May report on April manufacturing that surveys the nation’s purchasing managers shows manufacturing activity barely expanded.
While these reports on the wider manufacturing industry range from equally disappointing to slightly more encouraging, it seems that no matter how you digest all of this information the bottom line is that hopes that manufacturing would be at least as good as a year earlier are fading.
However, all is not doom and gloom.
In contrast to orders, shipments of durable goods increased 1.6% in April from March, the first monthly improvement following two straight monthly declines. Also shipments of so-called “core capital goods,” a number that goes into calculating quarterly gross domestic product figures, increased 0.3% in April, reversing March’s decline of 0.3%.