Durable goods meet expectations

April 24, 2024

Durable goods orders rose 2.6%, just about in line with the consensus estimate of 2.5%. February orders were revised lower to 0.7% from the previously reported 1.3%.

Transportation orders were the key source of strength in the March report. Civilian aircraft orders soared 30.6% as Boeing booked orders of 113 planes, up sharply from 15 planes in February. Excluding transportation, durable goods orders rose 0.2%.

Motor vehicles and parts orders made a strong contribution to the rise in transportation orders, increasing 2.1% in March after rising 1.9% in February. Although the level of dealer inventories remains high, there has been progress in reducing the bloat with some auto manufacturers faring better than others. New vehicle inventory fell to 72 days of supply in April, down from 80 days earlier this year. The optimal level of inventory is considered to be 60 days.

Orders for computers and electronic equipment rose 0.8%, benefiting from hardware demand to run generative AI initiatives.

Defense orders rose 10.6% as regional conflicts continued in Europe and the Middle East. Those orders contributed 0.3% to the 2.6% rise in overall orders.

Electrical equipment, machinery and fabricated metals orders edged higher in March.

Primary metals orders fell 0.5%, the only industry that showed a decline in March.

Core orders, which represent capital goods orders excluding defense and aircraft and are a proxy for future business spending, added 0.2%. That was in line with the consensus estimate. February core orders were revised down to 0.4% from 0.7%.

The retracement of the strength in core orders may be reflective of increasing uncertainty among business leaders. Policy uncertainty associated with the November US elections, escalating geopolitical tensions and trade policy were among the most cited risks by respondents in the Federal Reserve's latest Financial Stability Report. The previous day's release of S&P Global's manufacturing purchasing managers' index (PMI) showed the index slipping back into contractionary territory for April. The index fell to 49.9 after showing over-50 results for the first three months of 2024, an indication that manufacturing leaders were more optimistic about the economy at the start of the year.

The shipments data for the current quarter was in line with expectations. Nondefense capital goods shipments excluding aircraft, which serve as a proxy for nonresidential investment spending in the current quarter, rose 0.2%, as expected. This is consistent with our expectation of about a 3% increase in business investment in the first quarter on a seasonally adjusted, annualized basis.