By Lucia Mutikani
WASHINGTON, April 7 (Reuters) – New orders for key U.S.-manufactured capital goods increased more than expected in February while shipments of those products rose solidly, suggesting business spending on equipment was on firmer footing before the war with Iran.
The strength reported by the Commerce Department on Tuesday followed weakness in January, which some economists had blamed on harsh weather. The U.S.-Israeli war with Iran, now in its second month, has boosted oil prices and snarled supply chains.
Economists anticipated softness in orders and shipments in the months ahead.
“I suspect that firms turned cautious again in March, and likely April, waiting to see how high energy prices would move and for how long,” said Stephen Stanley, chief U.S. economist at Santander U.S. Capital Markets. “My base case remains that the spike in energy prices seen in March will last no more than a few months, which would suggest no worse than a pause in investment activity with little impact on the broader trend.”
Non-defense capital goods orders excluding aircraft, a closely watched proxy for business spending, rose 0.6% after a downwardly revised 0.4% drop in January, the Commerce Department’s Census Bureau said.
Economists polled by Reuters had forecast these so-called core capital goods orders would increase 0.4% after a previously reported 0.1% gain in January.
The Census Bureau is still catching up on data releases following delays caused by last year’s government shutdown.
There were increases in orders for primary metals and fabricated metal products. Orders for machinery jumped 1.5%. Orders for computers and electronic products were unchanged as an increase in the computers and related products category was offset by a decline in communications equipment. Orders for electrical equipment, appliances and components dipped 0.1%.
Core capital goods shipments increased 0.9% in February after being unchanged in January. These shipments are among the components that go into the calculation of the business spending on equipment component in the gross domestic product report.
Core capital goods inventories rose 0.2% in February. Business spending on equipment has grown for four straight quarters, though the pace slowed in the fourth quarter.
Stocks on Wall Street were trading lower as President Donald Trump’s deadline for Iran to reopen the Strait of Hormuz approached. The dollar slipped against a basket of currencies. U.S. Treasuries were little changed.
DELIVERY TIMES ARE LENGTHENING
Some economists are worried the Middle East conflict could hamper shipments. An Institute for Supply Management manufacturing survey last week showed supplier delivery times increasing to a four-year high in March.
“With non-defense aircraft and parts shipments dropping 5.7% in February, there are modest downside risks to our forecast for business equipment investment growth to have accelerated to 7.5% annualized last quarter,” said Bradley Saunders, North America economist at Capital Economics.
Economists at Goldman Sachs lowered their GDP growth estimate by 0.2 percentage point to a 2.7% annualized rate. The economy grew at a 0.7% pace in the fourth quarter.
Business investment in equipment remains supported by the rising popularity of artificial intelligence and construction of data centers to power the technology, as well as tax cuts. That trend is underpinning some segments of manufacturing, which accounts for 10.1% of the economy, and blunting some of the drag from import tariffs.
Orders for durable goods, items ranging from toasters to aircraft meant to last three years or more, dropped 1.4% in February after falling 0.5% in January. They were weighed down by a 28.6% plunge in commercial aircraft orders. Boeing reported on its website that it had received only 21 civilian aircraft orders in February, sharply down from 107 in January.
Orders for motor vehicles and parts shot up 3.1%, while those for defense aircraft fell 3.8%. Overall orders for transportation equipment decreased 5.4% after declining by 1.9% in January. Excluding transportation, durable goods orders increased 0.8% after gaining 0.3% in January.
Shipments of durable goods advanced 1.3% after rising by 0.9% in January. Unfilled durable goods orders edged up 0.1%, matching the rise in inventories.
“Durable goods spending does not like elevated uncertainty, less accommodative financial conditions, weaker sentiment, cost pressures and supply chain problems – all of which are evident since the start of the conflict,” said Oren Klachkin, financial market economist at Nationwide. “AI investment is unlikely to be deterred by the current global macro backdrop and should offer a consistent tailwind to durable goods and topline GDP.”
(Reporting by Lucia Mutikani; Editing by Chizu Nomiyama, Paul Simao and Andrea Ricci )
