Durable Goods Orders Forecast to Rebound in March

Report could potentially impact the Q1 GDP figures

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The Department of Commerce will be releasing the preliminary durable goods orders report today. According to the economists polled, the durable goods orders are forecast to rise 0.7% on the headline. This would reverse the 1.6% decline seen in February.

Core durable goods orders are forecast to rise 0.2% on the month, reversing the 0.1% decline in February. Both the headline and the core durable goods orders are forecast to rebound following February’s decline.

Given that the durable goods orders report is for the month of March, this could potentially have an impact on the US GDP figures that are due on Friday.

Right now, the estimates are showing that the US economy might have increased by 2.2% in the first three months of the year. But a soft report from the durable goods orders could potentially dent that bullish expectation.

Durable Goods Orders Fell in February

In February, the data was mixed. Orders for non-defense capital goods which exclude aircraft orders fell 0.1%. This was as a result of falling demand in machinery, computers and electronic equipment.

Orders for big-ticket manufacturing goods were down 1.6% reflecting the biggest decline in four months. This was largely due to the volatile aircraft orders.

U.S. Durable goods orders
U.S. Durable goods orders, February

The core capital goods orders rose 2.6% on a year over year basis, but shipments remained unchanged during the month. This came after January’s data was revised slightly higher.

The decline in the durable goods orders came largely due to a 31.1% plunge in aircraft orders. Meanwhile, the demand for motor vehicles and parts were down 0.1% after posting a 0.5% decline in January.

Manufacturing and Industrial Output Remains Weak in March

The forecasts for March show that expectations are toward a possible rebound in the durable goods orders report. However, other data feeding into the report show that the results might be mixed.

Manufacturing activity in the US remains soft. The recent industrial production figures fell 0.1% in March. This posted a 0.3% decline in industrial production on a quarterly basis. Industrial production rose 4.0% in the fourth quarter of last year.

Economists forecast that manufacturing production would rise by 0.1% in March. In February, production was down 0.3%. With the unchanged print for March, it was the first quarterly decline in the past two years.

Factory production fell 1.1% on a year over year basis by the end of the first quarter.

On top of the weakness in production, the recent investigations into Boeing’s 737 Max aircraft are also likely to hit the durable goods orders report. The stoppage of delivery and a slowdown in production from Boeing’s side could continue to post a drag on both production and orders.

The capacity utilization rate, which measures the amount of slack fell to 76.4% in March. This marked the lowest reading and was down from February’s 76.5%. There was a significant decline in the overall use of the industrial sector in March.

Will the US Durable Goods Orders Report Rebound in March?

It is quite likely that the durable goods orders report could underwhelm the market expectations. While manufacturing has remained somewhat weak, the data could cap off an uncertain quarter.

The durable goods orders for March will have a limited impact for now. This is because investors will be already looking ahead into the reports from the second quarter. So far, the general consensus is that the US economy was better than initially expected in the first quarter of the year.

As a result, it is quite likely that the markets have already priced in a somewhat weaker GDP report. The recent trends in consumption are starting to show that the US economy is once again in a rebound. This could potentially keep investors excited on hopes that economic growth is still strong.

There is also optimism about the US and China trade talks which could potentially come as a boost to US trade. This was evident from the recent trade deficit numbers which saw the US deficit narrowing for a second consecutive month.

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