March 23, 2018 11:30 AM, EDT

Capital-Equipment Orders Rebound by More Than Forecast

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Orders placed with U.S. factories for business equipment snapped back in February after two months of declines, consistent with steady manufacturing growth, a Commerce Department report showed March 23.

Highlights of February Durable Goods Orders

• Non-military capital goods orders excluding aircraft rose 1.8% (estimated up 0.9%), the biggest advance since September, after falling a downwardly revised 0.4% in January; figure is proxy for business investment.

• Shipments of those goods, which are used to calculate gross domestic product, increased 1.4% (estimated up 0.5%); January revised up to a 0.1% increase (prevously down 0.1%).

• Bookings for all durable goods, items meant to last at least three years, rose 3.1% (estimated 1.6% gain) following a 3.5% decrease.

Key Takeaways

The bigger-than-expected rebound in the data suggests corporate outlays for equipment will remain strong in the first three months of 2018 after accelerating for five straight quarters, and some analysts may upgrade tracking estimates for first-quarter figures.

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While there still may be a tempering in the pace of investment, spending continues to be supported by firmer global economic growth and lower tax rates.

That was also the message from Federal Reserve policy makers this week. In their statement accompanying a quarter-point increase in interest rates, officials said “recent data suggest that growth rates of household spending and business fixed investment have moderated from their strong fourth-quarter readings.” Still, they posited that the “economic outlook has strengthened in recent months.”

The sizable jump in February’s figures reflected increases in categories including primary metals, fabricated metal products, machinery and electrical equipment and appliances.

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That could also reflect possible efforts by businesses to place orders before Trump administration tariffs on imported steel and aluminum took effect. Investors and economists will watch data including durable goods and trade closely in coming months for any indications of an impact from the tariffs and other trade and retaliatory measures.

Other Details

• Excluding transportation equipment, a volatile category, durable goods orders rose 1.2% after a 0.2% decrease.

• Civilian aircraft and parts orders rose 25.5% after 27.9% drop; military aircraft up 37.7% following 48.9% decline.

• Orders for motor vehicles and parts rose 1.6% following a 0.1% gain.

• Bookings for fabricated metal products increased 0.8%; primary metals up 2.7%, machinery up 1.6%.

• Orders for communications equipment fell 8.4%, biggest drop since December 2015.

• Durable-goods inventories rose 0.4%.

• Defense capital-goods orders increased 16.5%, most since March 2017, following 26.4% drop.

With assistance by Katia Dmitrieva, and Chris Middleton