US Core Capital Goods Orders Signal Sluggish Business Equipment Spending in April 2024

New US capital goods orders rise slightly, but business spending on equipment likely sluggish in Q1 2024 due to higher interest rates, raising concerns about manufacturing and economic growth.

Olalekan Adigun
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US Core Capital Goods Orders Signal Sluggish Business Equipment Spending in April 2024

US Core Capital Goods Orders Signal Sluggish Business Equipment Spending in April 2024

New orders for key U.S.-manufactured capital goods increased slightly in March, but data for the prior month was revised lower, suggesting business spending on equipment was likely sluggish in the first quarter of 2024. The Commerce Department's Census Bureau reported that orders for non-defense capital goods, excluding aircraft, a closely watched proxy for business spending plans, increased by 0.2% in March. However, the February data was revised downward to show a 0.4% rise instead of the previously reported 0.7% increase.

Core capital goods shipments, which contribute to the calculation of gross domestic product (GDP), rebounded by 0.2% in March after falling 0.6% in February. Despite this modest rebound, orders for these goods dropped by 0.1% on a three-month moving annualized basis, marking the third consecutive decline. Economists expect business spending on equipment to have posted a mild gain in the first quarter after contracting for two straight quarters.

The sluggish performance in business equipment spending comes amid the Federal Reserve's cumulative 525 basis points increase in interest rates since March 2022, aimed at curbing inflation. While expectations persist for the Fed to commence rate cuts this year, the timing of the first reduction remains uncertain as inflation remains elevated and the economy shows resilience. Businesses seem less incentivized to invest now that rate cuts will most likely be delayed and lessened this year, setting up for a weaker second quarter for the sector.

Why this matters: The sluggish business equipment spending indicated by the data in April 2024 raises concerns about the strength of the manufacturing sector and overall economic growth. As businesses confront higher borrowing costs and economic uncertainty, their reluctance to invest in equipment could have broader implications for productivity, employment, and the sustainability of the economic recovery.

Despite the subdued growth in core capital goods, the overall manufacturing sector appears to be rebounding, with durable goods orders jumping by 2.6% in March, following a revised 0.7% increase in February. A recent survey from the Institute for Supply Management indicated that manufacturing expanded in March for the first time in one-and-a-half years. However, the weakness in business equipment spending is unlikely to change dramatically while credit conditions remain restrictive, especially for smaller firms.

Key Takeaways

  • New orders for U.S. capital goods rose slightly in March, but February data revised lower.
  • Core capital goods shipments rebounded 0.2% in March after falling 0.6% in February.
  • Orders for these goods dropped 0.1% on a 3-month annualized basis, marking 3rd consecutive decline.
  • Sluggish business equipment spending due to higher interest rates, economic uncertainty.
  • Overall manufacturing sector rebounding, but weakness in equipment spending likely to persist.