March 26, 2024 – 6:52 AM PDT
WASHINGTON (Reuters) – Orders for long-lasting U.S. manufactured goods increased more than expected in February, while business spending on equipment showed tentative signs of recovery, boosting the economy’s prospects in the first quarter.
The rebound in orders reported by the Commerce Department on Tuesday, which was driven by increases in transportation equipment, primary metals and machinery, suggested manufacturing could be regaining its footing after struggling in the aftermath of the Federal Reserve’s hefty interest rate hikes.
“The data suggest that business equipment investment is beginning to recover, and with corporate bond yields likely to fall a little further over the coming months while manufacturing activity appears to be picking up again, we suspect that recovery has further to run,” said Andrew Hunter, deputy chief U.S. economist at Capital Economics.
Orders for durable goods, items ranging from toasters to aircraft meant to last three years or more, rose 1.4% last month, the Commerce Department’s Census Bureau said. Data for January was revised lower to show orders falling 6.9% instead of 6.2% as previously reported. Economists polled by Reuters had forecast durable goods orders would rise 1.1%.
Orders advanced 1.8% on a year-on-year basis in February. The outlook for manufacturing, which accounts for 10.3% of the economy, is steadily improving amid expectations that the U.S. central bank will start cutting rates this year.
A survey from the Institute for Supply Management this month showed manufacturers were fairly upbeat in March about sales and business conditions. Factory output rebounded in February.
The Fed has hiked its policy rate by 525 basis points to the current 5.25%-5.50% range since March 2022.
But the sector is not out of the woods yet.
AIRCRAFT ORDERS RISE
Civilian aircraft orders increased 24.6% last month after plummeting 63.5% in January.
Boeing (BA.N) reported on its website that it had received 15 orders for commercial aircraft. While that was an improvement from the three orders booked in January, it marked a continued sharp slowdown from the end of 2023.
The planemaker is under pressure after a cabin panel blew out in mid-air on an Alaska Airlines jet in early January, with the Federal Aviation Administration barring Boeing from expanding production of its best-selling 737 MAX narrow-body planes to improve quality control.
Boeing announced on Monday that CEO Dave Calhoun would step down by the end of 2024 as part of a broad management shakeup.
Overall transportation orders climbed 3.3% in February after dropping 18.3% in January. Orders for motor vehicles and parts accelerated 1.8%. Orders of primary metals rebounded 1.4% and those of fabricated metals rose 0.8%. Machinery orders increased 1.9%.
But orders for computers and electronic products fell 1.4%, while those for electrical equipment, appliances and components decreased 1.5%.
Non-defense capital goods orders excluding aircraft, a closely watched proxy for business spending plans, rose 0.7% in February after falling 0.4% in the prior month.
These so-called core capital goods orders were previously reported to have been unchanged in January. Core capital goods shipments fell 0.4% after rising 0.8% in January.
Non-defense capital goods orders advanced 4.4%, while shipments in that category rose 2.7% after declining 3.0% in January. Shipments of these goods go into the calculation of the business spending on equipment component in the gross domestic product report.
Business spending on equipment contracted in the fourth quarter. It has declined in four of the last five quarters.
Reporting by Lucia Mutikani; Editing by Chizu Nomiyama and Paul Simao