Durables demand remains steady

Summary

The April durable goods data suggest demand remains broadly intact in the factory sector. Orders continued to roll in at a decent clip and capital goods shipments point to a decent start to the second quarter for equipment spending. Recent regional Fed manufacturing surveys signal weaker activity, but we are not convinced that cooling in demand is imminent.

Demand intact in factory sector

Orders for durable goods continued to roll in at a steady pace in April, rising 0.4% from a month earlier. There were modest downward revisions to March orders, but the details of the report suggest demand for production remains intact.

Orders were broadly positive across major categories, with just electrical equipment and fabricated metals orders moving only modestly lower last month. The typically volatile transportation sector boosted the headline last month, largely due to a 4.3% surge in nondefense aircraft orders, while new orders for autos pulled back 0.2% after a sizable gain in March. After stripping transportation and defense from the estimates, core capital goods orders rose 0.3% last month, leaving orders a whopping 19.3% above their pre-pandemic level. The steady march higher in orders emphasizes the resilient demand in the sector.

Shipments eked out only a modest 0.1% gain in April, but non-defense capital goods shipments were up 0.6%. As these estimates are used in the equipment spending estimates for GDP, they suggest spending is off to a decent start in the second quarter. But manufacturers are still struggling with limited supply and unfilled orders leaped another 0.5% last month. Durables backlog has now risen in each of the past twenty months as a lack of inputs and labor continue to limit activity.

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