U.S. durable goods orders fell in April, but business investment to rise

Orders for long-lasting manufactured goods fell in April amid weaker demand for aircraft. But a key category that tracks business investment rose after sliding in March—a sign of health for American industry.

The Commerce Department says U.S. orders for durable goods—manufactured items from washing machines to battleships that are meant to last at least three years—fell 1.7% from March. The figure was pushed down by a 29% plunge in orders for civilian aircraft.

But transportation orders are volatile and bounce around from month to month. Without them, durable goods orders rose 0.9%. Orders for computers, appliances and other electrical equipment and motor vehicles all rose.

Orders for civilian capital goods excluding aircraft, a number that tracks business investment, rose 1% in April after dropping 0.9% in March.

U.S. industry is healthy, helped by an expanding world economy and robust spending by American consumers. But the outlook may be cloudier. The dollar has been rising, which should drive up the price of U.S. products in foreign markets. Manufacturers also face uncertainty surrounding the Trump administration’s decision to slap tariffs on imported steel and aluminum.

The Federal Reserve reported last week that U.S. factory production rose in April after a flat reading in March. A broader measure of industrial production, which includes mining and utilities, rose 0.7%.

Derek Holt, vice-president and head of Capital Markets Economics at Scotiabank, is optimistic in a Friday report. “The second quarter is off to a better start for core capital goods orders than the first quarter,” he says, adding that “the nominal dollar value of the core order book grew by only 1.7% in Q1 but is tracking a 4% rise in Q2.”

On GDP, he’s more cautious. “Of course orders speak to GDP growth prospects whereas shipments speak to efforts to ‘nowcast’ current quarter GDP growth. On that, the news is not so good. Core shipments are tracking about a 3% rise in Q2, which is unchanged from the mild 3% rise in Q1 following the large 11% rise in Q4,” Holt writes.

If you “strip inflation out,” he says, “the core shipments book is soft so far this year.”

Andrew Grantham, senior economist for CIBC Capital Markets, says business investment prospects are looking up. In a research note, he says the three-month annualized rate of core capital orders “firmed to 6.3% (strongest since November), in a sign that the underlying trend is improving again. That’s a good sign for business investment, which we expect to support growth a little more going forward than it did in Q1, particularly given new tax incentives.”

He concludes Friday’s data puts forward “pretty decent numbers in the detail but maybe not enough to see much of a market reaction.”

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