The Economy

Durable Goods Orders Fall, But Key Capital Goods Beat Expectations

The 0.8% fall in orders for heavy machinery was seen by some as a sign that perhaps tariffs on steel and other goods had hurt demand.
William SprouseMay 28, 2018
Durable Goods Orders Fall, But Key Capital Goods Beat Expectations

Overall orders for durable goods dropped 1.7% in the U.S. in April, according to data released Friday by the Commerce Department.

But new orders for key capital goods made in the U.S. increased 1.0% last month, exceeding expectations. The latter category, which includes non-defense capital goods excluding aircraft, is considered an important proxy for business spending plans.

Business spending has been buttressed, analysts say, by the Trump administration’s $1.5 trillion tax cut, which reduced the corporate rate to 21%.

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Spending on equipment by businesses, which had grown by double digits in the second half of 2017, slowed in the first quarter of this year.

Stephen Stanley, chief economist at Amherst Pierpont Securities, said core capital-goods shipments this year have been “far softer than I would have imagined” given the corporate tax cuts, but he continues to expect a “strong year for capital spending.”

JPMorgan Chase economist Daniel Silver wrote that the key capital-goods orders and shipments figures “appear to be continuing to trend higher over time,” though inflation-adjusted equipment spending may be “pretty soft” during the second quarter, according to a report from Bloomberg.

The 0.8% fall in orders for heavy machinery was seen by some as a sign perhaps that tariffs on steel and other goods announced by the Trump administration had hurt demand.

Orders in machinery and civilian aircraft fell, while orders in computers, electrical equipment, and metals, gained.

MarketWatch said the drop in durable goods was largely due to a drop in orders for Boeing, which saw 78 orders for aircraft in April, compared with 197 in March. Orders for commercial jets had risen 61% in March, but fell 29% last month and often swing from month to month.

Durable goods are items meant to last at least three years.

Economists had forecast an increase of core capital goods orders of 0.7%.