New orders for major capital goods from the US fell in March, weighed down by the sharpest drop in demand for machinery in nearly two years, and a decline in deliveries cemented expectations that equipment spending slowed in the first quarter.
However, other data on Thursday showed that the economy remains on a strong footing. The number of Americans applying for unemployment benefits fell to their lowest level in more than 48 years, and the trade deficit narrowed strongly in March due to strong export growth.
“The US economy is still moving higher,” said Chris Rupkey, chief economist of the MUFG in New York. “The decline in company orders is not a red flag for the economic outlook, even if the warning light stays on.”
The Department of Commerce said orders for non-military investment goods other than aircraft, a closely watched proxy for business spending plans, fell 0.1 percent last month. February data has been revised to show that these so-called core capital goods rose 0.9 percent instead of the previously reported 1.4 percent jump.
Reuters analysts predicted that core capital goods orders rose 0.5% last month. Core capital goods orders rose by 6.5 percent compared to the previous year.
Orders for machinery fell 1.7 percent last month, the biggest drop since April 2016, after rising 0.3 percent in February. However, there has been an increase in orders for primary metals, computers and electronic products, fabricated metals and electrical appliances, appliances and components.
Total orders for durable goods, from toasters to aircraft, which are expected to last three years or more, increased 2.6 percent in March as demand for transportation increased by 7.6 percent. That was a 3.5% increase in durable goods orders in February.
Capital goods dropped 0.7 percent last month, up 1.0 percent in February. Core capital shipments are used to calculate equipment expenditures in measuring the state’s gross domestic product.
They are said to have reached 1.4 percent in February. Equipment investment is likely to have cooled in the first quarter following double digit growth in the second half of 2017. The modest investment in equipment is likely to have been reflected in the first quarter, coupled with a significant slowdown in consumer spending to curb economic growth.
US Treasury yields remained at a lower level, according to the data. The dollar rose against a basket of currencies. Wall Street stocks traded higher as Facebook and a handful of technology stocks rose sharply from chip makers.
According to a survey of economists conducted by Reuters, GDP growth is expected to have slowed to an annualized 2.0 percent in the first three months of the year. The economy grew by 2.9 percent in the fourth quarter. The government will publish its projected GDP estimate for the first quarter on Friday.
The expected slowdown in economic growth is likely to be temporary in the context of a robust labor market, which should support consumer spending. It is expected that the economy will be boosted by the Trump government’s $ 1.5 trillion income tax reduction package and higher government spending to support business investment.
“We continue to believe that investment growth will pick up as the year progresses, as tax cuts boost domestic demand and reduce capacity constraints,” said Michael Pearce, senior economist at Capital Economics in New York.
In a separate report released on Thursday, the Department of Labor said the original claims for state unemployment benefits fell 24,000 to seasonally-adjusted 209,000 for the week ended April 21, the lowest level since December 1969. Reuters surveyed economists had projected claims at $ 230,000 the last week.
The job market is considered close or fully employed. The unemployment rate is at a 17-year low of 4.1 percent, not far from the Federal Reserve’s forecast of 3.8 percent by the end of this year.
“The tense job market is getting tighter,” said John Ryding, chief economist at RDQ Economics in New York. “Businesses are reluctant to dismiss work, presumably because of the difficulty of replacing workers.”
A third report by the Department of Commerce showed that the trade deficit fell 10.3 percent to $ 68.0 billion in March. Exports rose $ 3.4 billion to $ 140.1 billion last month, reflecting a strengthening global economy and the weak US dollar. Imports declined $ 4.4 billion to $ 208.1 billion in March.
The department also reported that wholesale inventories rose 0.5 percent last month. However, retail inventories decreased by 0.4 percent. The trade deficit and stock data had only a small impact on GDP estimates for the first quarter.