BA Boeing Co

By Sharon Nunn 

This article is being republished as part of our daily reproduction of WSJ.com articles that also appeared in the U.S. print edition of The Wall Street Journal (April 27, 2018).

WASHINGTON -- Demand for long-lasting U.S. factory goods rose in March due to increased aircraft orders, but an underlying proxy for business investment fell for the second time in three months.

Orders for durable goods -- manufactured products intended to last at least three years, such as stoves and industrial robots -- increased a seasonally adjusted 2.6% in March from the prior month, the Commerce Department said Thursday. Meanwhile, a business-investment gauge, new orders for nondefense capital goods excluding aircraft, declined 0.1% in March from the prior month.

Taken together the Commerce Department's latest report provides a mixed picture of U.S. business investment in the wake of late-2017 tax cuts meant to encourage U.S. firms to make capital expenditures.

"I was especially disappointed by the core capital goods performance," Stephen Stanley, chief economist at Amherst Pierpont Securities said in a note to clients. "This gauge has been essentially flat on balance since October. I still believe that a burst of investment activity is coming, but I am surprised that we have yet to see much momentum in the orders measure."

Many economists expect overall U.S. economic output will grow at a faster rate this year, bolstered by the recent tax-law changes. Business investment increased robustly in 2017, but has slowed in recent months. For the first quarter overall, the gauge rose 6.5% compared with the same period last year. That is below the fourth quarter's growth of 8.7% from the previous year.

Durable goods data tends to be choppy, and recent manufacturing surveys still point to manufacturers' intention to make business investments.

"It's difficult to know how much is [data] volatility or how much is an actual loss of momentum," Jim O'Sullivan, chief U.S. economist at High Frequency Economics said in an interview.

Transportation equipment, which clocked gains in four out of the past five months, drove March's overall durable-goods increase. Within this category, nondefense aircraft and parts orders rose 44.5% on the month, suggesting a strong first quarter of aircraft orders at manufacturer Boeing Co. helped drive the headline figure. When excluding the transportation category, durable-goods orders were virtually unchanged in March from the previous month.

"In short, the details were not as strong as the headline, with much of the strength from civilian aircraft," Mr. O'Sullivan noted.

Excluding defense goods, another volatile category, orders rose 2.8% last month.

Overall orders were also up four out of the last five months and saw a larger-than-expected monthly gain in February too, when orders rose 3.5%. In the longer term, orders for long-lasting factory goods have marched higher since the middle of 2016. Orders rose 8.7% in the first quarter of 2018 compared with last year.

Thursday's report also showed a 1.7% decline in machinery orders in the past month, the largest monthly drop since April 2016. Meanwhile, orders for communications equipment rose 8.2%, the largest gain since the beginning of 2016.

Write to Sharon Nunn at sharon.nunn@wsj.com

(END) Dow Jones Newswires

April 27, 2018 02:47 ET (06:47 GMT)

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