Containers are seen on a shipping dock, as the global outbreak of the coronavirus disease (COVID-19) continues, in the Port of Los Angeles, California, U.S., April 16, 2020. REUTERS/Lucy Nicholson
New orders for key U.S.-made capital goods rose solidly in March and shipments surged, cementing expectations that economic growth accelerated in the first quarter as massive government aid and improving public health boosted demand.
The report from the Commerce Department on Monday joined upbeat data on retail sales and the labor market in positioning the economy for what analysts expect will be its strongest performance this year in nearly four decades.
Orders for non-defense capital goods excluding aircraft, a closely watched proxy for business spending plans, increased 0.9% last month. These so-called core capital goods orders fell 0.8% in February after bitterly cold temperatures gripped large parts of the country. Economists polled by Reuters had forecast core capital goods orders increasing 1.5% in March.
“With demand being boosted by fiscal stimulus, corporate borrowing costs still low and the manufacturing new orders surveys going from strength to strength, we expect investment to continue expanding at a robust pace this year,” said Andrew Hunter, a senior U.S. economist at Capital Economics.
Core capital goods orders surged 10.4% year-on-year in March.
Reports this month showed retail sales raced to a record high in March while the economy created the most jobs in seven months. Factory activity measures are at multi-year highs, indication continued for manufacturing, which accounts for 11.9% of the U.S. economy.
The White House’s massive $1.9 trillion COVID-19 pandemic rescue package and increased vaccinations against the virus have allowed for broader economic re-engagement, unleashing pent-up demand, for both goods and services.
Households have accumulated at least $2 trillion in excess savings. With demand booming and inventories low, businesses are likely to continue investing in equipment to boost production, though raw material and input shortages could be an issue.
In March, core capital goods orders were boosted by machinery, primary and fabricated metal products, as well as computers and electronic products. But orders for electrical equipment, appliances and components dropped 1.5%.
Shipments of core capital goods rebounded 1.3% last month. Core capital goods shipments are used to calculate equipment spending in the government’s GDP measurement. They dropped 1.1% in February.
The dollar was steady against a basket of currencies. U.S. Treasury prices were lower.
STRONG BUSINESS INVESTMENT
Business investment on equipment surged in the second half of last year. The strong growth pace is expected to have prevailed in the first and persist through the remainder of this year, driven by pent up demand amid low inventories at businesses.
The government will publish its snapshot of first-quarter GDP on Thursday. According to a Reuters survey of economists the economy grew at a 6.1% annualized rate in the January-March quarter. That would be the a second fastest growth pace since the third quarter of 2003 and would follow a 4.3% rate of expansion in the final three months of 2020.
The economy grew at record 33.4% pace in the third quarter of 2020 after contracting at a historic 31.4% rate in the April-June period. Growth is expected to top 7.0% this year, which would be the fastest since 1984. It would follow a 3.5% contraction last year, the worst performance in 74 years.
Orders for durable goods, items ranging from toasters to aircraft that are meant to last three years or more, rose 0.5% in March after falling 0.9% February. They were restrained by a 1.7% decline in orders for transportation equipment, which followed a 2.0% drop in February.
Orders for civilian aircraft tumbled 46.9%. That was despite Boeing (BA.N) reporting on its website that it had received 196 aircraft orders last month compared to 82 in February. Last month’s orders included 185 737 MAX jets. The U.S. government late last year lifted a 20-month grounding of the aircraft that was put in place after two crashes in Indonesia and Ethiopia.
Orders for motor vehicles and parts shot up 5.5% in March after plunging 9.1% in February. Motor vehicle production has been hit by a global semiconductor chip shortage. Output of computers and electronic products also has been impacted.
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