March durable goods shows biggest decline in seven months

On Friday, the Bureau of Economic Analysis will give its initial estimate of 2013Q1 GDP growth, and the news is not likely to be bright after seeing the durable-goods report for March.  Orders dropped 5.6% from February, twice as much as economists’ estimates, and capital-goods orders tanked:

New Orders. New orders for manufactured durable goods in March decreased $13.1 billion or 5.7 percent to $216.3 billion, the U.S. Census Bureau announced today. This decrease, down two of the last three months, followed a 4.3 percent February increase. Excluding transportation, new orders decreased 1.4 percent. Excluding defense, new orders decreased 4.7 percent. Transportation equipment, also down two of the last three months, led the decrease, $11.0 billion or 15.0 percent to $62.4 billion. This was led by nondefense aircraft and parts, which decreased $8.5 billion.

Capital goods orders, which show business investment for the near term, did even worse.  While defense orders dropped by a third — the result of the sequester, in all likelihood — non-defense orders fell by more than 10%:

Capital Goods. Nondefense new orders for capital goods in March decreased $8.3 billion or 10.6 percent to $70.2 billion. Shipments increased $1.5 billion or 2.1 percent to $71.8 billion. Unfilled orders decreased $1.5 billion or 0.3 percent to $593.7 billion. Inventories increased $0.6 billion or 0.4 percent to $176.1 billion. Defense new orders for capital goods in March decreased $2.5 billion or 33.2 percent to $5.0 billion. Shipments increased slightly or 0.1 percent to $8.4 billion. Unfilled orders decreased $3.4 billion or 2.0 percent to $163.6 billion. Inventories decreased $0.3 billion or 1.5 percent to $22.0 billion.

Even February, which had shown a 4.3% increase in durable-goods orders, saw its initial estimates pulled back a bit:

Revised February Data. Revised seasonally adjusted February figures for all manufacturing industries were: new orders, $489.3 billion (revised from $492.0 billion); shipments, $488.9 billion (revised from $489.3 billion); unfilled orders, $997.5 billion (revised from $999.7 billion); and total inventories, unchanged from $620.0 billion.

Reuters doesn’t sugar-coat the results, calling it “bad news for the economy” in its headline:

Orders for long-lasting U.S. manufactured goods recorded their biggest drop in seven months in March and a gauge of planned business spending rose modestly, adding to signs of a slowdown in factory activity.

Durable goods orders slumped 5.7 percent as demand fell almost across the board, the Commerce Department said on Wednesday. The drop last month in orders for these goods, which range from toasters to aircraft, followed a revised 4.3 percent increase in February.

Economists polled by Reuters had expected orders to fall 2.8 percent from a previously reported 5.6 percent increase. Excluding transportation, orders declined 1.4 percent after falling 1.7 percent the prior month.

However, they also noticed a bright spot in the data … or at least a less-gloomy spot:

Non-defense capital goods orders excluding aircraft, a closely watched proxy for business spending plans, edged up 0.2 percent.

Orders for the so-called core capital goods had dropped 4.8 percent in February and economists had expected a 0.4 percent increase last month.

Core capital goods shipments, used to calculate equipment and software spending in the gross domestic product report, rose 0.3 percent. That followed a 1.2 percent rise in February, suggesting business spending would again contribute to growth in the first quarter.

Perhaps Q2 looks a little brighter than Q1, but then again, that’s what people thought about Q1 as compared to 2012Q4’s initial estimate of -0.1% annualized GDP change.  That ended up being +0.4% by the final estimate last month, and that could look relatively cheery by Friday.

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