There are two new reports on the U.S. economy worth mentioning this morning. First, data from the Census Bureau showed that new orders for U.S.-manufactured durable goods (items meant to last at least three years) rose in March by $1.6 billion (0.7 percent) to $238.7 billion. That was the third monthly increase in a row but a much smaller gain than economists had anticipated. “Core” durable goods orders, which exclude the volatile transportation component, fell in March by 0.2 percent versus the 0.4 percent gain that was expected. Similarly, orders for nondefense capital goods excluding aircraft, i.e. core capital expenditures, an important proxy for U.S. business investment, rose by just 0.2 percent in March, half the anticipated increase. Overall this was far from a terrible report but it was still disappointing, which caused many Wall Street analysts immediately after the data release to lower their estimates for first quarter U.S. gross domestic product (GDP) growth. The Federal Reserve Bank of Atlanta even slashed its Q1 expansion projection to just 0.2 percent. The first official reading on first quarter GDP growth will be released tomorrow morning.
Elsewhere, the Federal Reserve Bank of Kansas City’s composite manufacturing index showed that activity in the Midwestern region of the country cooled considerably this month. Specifically, the headline index ended April at +7.0, a much larger pullback than expected from March’s 6-year high, the biggest sequential decline since 2011, and the weakest headline reading since November. It is worth noting that this was the fifth and final regional manufacturing report released for the month of April, and every index weakened as soft (survey) data got back in line with hard data, e.g. the above-mentioned durable goods report. Under the hood, exports improved in April but gauges of new orders, production, shipments, and employment all expanded at a slower rate. Below are a few highlights from the comments submitted by surveyed managers:
- “Slow first quarter but some pickup in new order bookings in March. Lots of customer projects being discussed, but they seem to be slow to actually pull the trigger on placing orders.”
- “We see the economy containing tremendous optimism for the current administration on the expectation that reduced regulation, or perception of excessive persecution of business activity, combined with changes in tax law, trade law and health care will stimulate growth.”
- “It is difficult to gain new business without poaching off the competition. This tends to erode margins. We have a lot of foreign competition in several key product lines which is difficult to combat because of their price points.”
- “Business is steady. We are still having issues finding qualified people to fill some of our skilled positions.”
Sources: Econoday, U.S. Census Bureau, Bloomberg, ZH, FRBKC, FRBSLPost author: Charles Couch