U.S. Durable Goods Plummet on Weakening Demand
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Durable goods sales contracted in another sign that the U.S. recovery may be stalling.
Despite expectations of growth, durable-goods orders fell by 1.4% in February—the third decline in the last four months even as analysts expected a 0.2% increase in goods for the month. The Commerce Department also lowered estimates for durable goods orders in January, showing a 2% rise versus previous estimates of a 2.8% increase.
Transport Goods Plummeting
Durable goods sales contracted in another sign that the U.S. recovery may be stalling.
Despite expectations of growth, durable-goods orders fell by 1.4% in February—the third decline in the last four months even as analysts expected a 0.2% increase in goods for the month. The Commerce Department also lowered estimates for durable goods orders in January, showing a 2% rise versus previous estimates of a 2.8% increase.
Transport Goods Plummeting
The biggest decline was in transportation equipment orders, which fell 3.5% to $69.5 billion in February. Excluding transportation, new orders fell 0.4% as more companies are cutting costs and turning negative on future demand.
The decline is largely attributable to the private sector, as defense spending was a tailwind to total new orders. Manufactured durable goods spending excluding transportation fell 1% versus the total 1.4% for all sectors.
Weak Demand
A decline from 2014, when unseasonably cold weather hampered transport and consumer spending, stunned many economists, who had expected goods orders to rise against easy comparisons from a year ago. Nonetheless, new orders for goods fell 0.5% from a year ago on an unadjusted basis.
New orders also fell 1.4% on a month-over-month basis in February, after rising 2% in January and falling 3.7% in December. The protracted decline indicates negative growth for demand for durable goods.
Inventories saw a modest increase, rising 0.3% from the prior month after rising at the same rate in January. A rise in inventories may indicate higher productivity, but some analysts have worried that a rise in inventories combined with a decline in new orders may indicate a slowdown in customer demand and could be a leading indicator of a recessionary trend.
Investor Caution
The report has encouraged a sense of mixed caution from investment banks, who released notes to clients warning that the U.S. economy could see growth stall. However, those same analysts also believe this could paradoxically benefit U.S. equities, as it would discourage a tightening monetary policy from the Federal Reserve, even after recent hints and chatter of an interest rate hike in June.
Short-term Treasury yields have been climbing and they rose slightly more on the news. Meanwhile, the 10-year Treasury indicated falling inflation expectations. The 10-year Treasury yield rose slightly but remained below 1.9% after the announcement.
U.S. equities also saw a mixed response, remaining largely range bound initially. Some economists have warned that U.S. inflation rates will remain pressured due to cheap oil and a continued fall in consumer spending.
A recent note by Goldman Sachs suggests that consumer spending, which has yet to rise, despite higher discretionary income on falling energy costs, is likely to accelerate radically later in the year as confidence in the economy continues to mount.
