Orders for U.S. durable goods plunged for a second straight month as businesses tightened capital spending amid the coronavirus pandemic.
The Commerce Department reported Thursday that factory goods orders declined 17.2% month to month in April, following the 16.6% drop in March. Economists polled by MarketWatch had expected a tumble of 18.2% last month.
Orders for non-defense capital goods excluding aircraft — a key measure of business investment — dropped 5.8% in April, below economists’ expectations of a 10.0% decline.
“While the decline in durable goods orders in April wasn’t quite as bad as expected, the opening up of capacity in the industrial sector and continued struggles in aviation industry will likely mean the rebound in the second half of the year in business investment lags behind other areas of the economy,” CIBC economists Andrew Grantham and Katherine Judge said in a note.
As Dow Jones reports, “businesses are reluctant to invest in equipment, software and facilities given the uncertainty about how long [coronavirus] lockdowns will last, whether the country will suffer a second virus outbreak, and how robust a recovery might be.”
The pandemic has also disrupted supply chains, impairing factories’ ability to get key parts, while depressed oil prices have prompted energy companies to pull back on purchases of drilling equipment.
But according to Reuters, “the bottom in core capital goods orders is likely near, with regional Federal Reserve factory surveys falling in May, but at less steep rates as the economy reopens.”
The transportation sector led the April plunge, with demand for transportation equipment collapsing by 47.3% as Boeing reported no orders. Orders for motor vehicles and parts dived 52.8%.
The decline in durable goods orders last month was the second largest that the government has ever recorded since it began tracking such data in the early 1990s.
“While this recession didn’t start with a capital spending slump, the weakness in investment spending could take a long time to dissipate,” JPMorgan Funds chief global strategist David Kelly said in a note to clients.
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