US Durable Goods Orders: Lower than expected in March, recovery in business spending intact

Analysts from Wells Fargo, noted that Durable goods orders increased less than expected in March amid weakness in non-transportation items. They pointed out that core capital goods orders posted a modest gain, while shipments signal a solid rise in Q1 equipment spending.

Key Quotes:

“Consistent with some of the softening that has begun to emerge in the survey data of the factory sector, growth in durable goods orders cooled in March. New orders rose 0.7 percent versus the market’s expectation for a 1.3 percent gain. That said, the weaker-than-expected outturn for March follows an upward revision to February. Orders for February were revised up from a 1.8 percent increase to a 2.3 percent gain.”

“Excluding transportation, orders missed the mark by falling 0.2 percent versus expectations for a 0.4 percent gain. In addition, relative to the headline’s revisions, growth in February was revised up only 0.2 percentage points.”

“While orders were somewhat disappointing in March, shipments suggest business spending for the first quarter as a whole was solid. Nondefense shipments, a good guide of equipment spending, rose 1.3 percent last month. Real equipment spending has begun to claw its way back from the hole dug from late 2015 through most of last year, and today’s reading on shipments points to a strong increase in Q1 business spending in tomorrow’s GDP report. The slower pace of core capital goods orders, however, suggests a more moderate clip in Q2, but that business spending should continue to grow in the months ahead.”

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