US durable goods orders rise, but capex looks weak

Orders for long-lasting US manufactured goods rebounded in February, but a surprise drop in a gauge of planned spending on capital goods pointed to sluggish economic growth this quarter.

The Commerce Department said orders for durable goods increased 2.2 per cent, ending two straight months of declines. Durable goods are items like toasters and aircraft that are meant to last three years or more.

However, orders for non-defence capital goods excluding aircraft unexpectedly fell 1.3 per cent after rising 0.8 per cent in January. This core capital goods measure is a closely watched proxy for business spending plans.

"First-quarter business investment looks to be soft, and it challenges some of the optimism surrounding the idea that capital expenditures were set to advance noticeably in 2014 from their 2013 pace," said Omair Sharif, senior economist at RBS in Stamford, Connecticut.

Economic growth in the first quarter is expected to have slowed from the fourth quarter’s annualized 2.4 per cent rate, with the expansion held back by unseasonably cold weather and an effort by businesses to work through a pile of unsold goods.

Some economists trimmed their forecasts of first quarter business investment on the orders data, but held their overall GDP forecasts steady, given an increase of 0.8 per cent in durable goods inventories in February.

A separate report showed the services industry grew solidly in March, adding to data such as industrial production, retail sales and employment in suggesting the economy was starting to pull out of its weather-induced soft patch.

Financial data firm Markit said its “flash” services sector Purchasing Managers Index rose to 55.5 in March from 53.3 in February. A reading above 50 indicates expansion.

The mixed reports helped to lift the dollar against a basket of currencies. Stocks on Wall Street pushed higher and US Treasury debt prices rose marginally.

Shipments of core capital goods rose 0.5 per cent last month. Shipments of these goods are used to calculate equipment spending in the government’s gross domestic product measure. They had declined 1.4 per cent in January.

“The improvement in core capital goods shipments suggests that this sector of the economy could provide a modest boost to economic activity this quarter,” said Millan Mulraine, deputy chief economist at TD Securities in New York.

The durable goods report showed overall shipments increased 0.9 per cent in February, after two straight months of declines. Unfilled orders also increased after being flat in January.

Last month, orders for transportation equipment increased 6.9 per cent as bookings for automobiles recorded their largest gain in a year. Transportation orders had declined 6.2 per cent in January.

Stripping out the increase in transportation orders, durable goods demand would have risen just 0.2 per cent in February.

There were also increases in orders for primary metals, fabricated metal products and computers and electronic products. Orders for machinery fell for a second straight month as did bookings for electrical equipment, appliances and components. (Reuters)