Weak Durable Goods Orders Point To Sluggish Economy

Orders for long-lasting manufactured goods recorded their biggest drop in seven months in March and a gauge of planned business spending rose only modestly, signs of a slowdown in economic activity.

Durable goods orders slumped 5.7 percent as demand fell almost across the board, the Commerce Department said on Wednesday. The drop last month in orders for these goods, which range from toasters to aircraft, followed a 4.3 percent increase in February.

Economists polled by Reuters had expected orders to fall only 2.8 percent. Excluding transportation, orders declined 1.4 percent after falling 1.7 percent the prior month.

From transportation to primary metals and machinery, orders were weak, the latest indication of cooling in a sector that has played a pivotal role in the economy's recovery from the 2007-09 recession.

"Overall, the weak tone of this report underscored the emerging narrative of a considerable slowing in economic growth momentum in March," said Millan Mulraine, senior economist at TD Securities in New York.

U.S. stock index futures fell after the report, while prices for longer-dated U.S. government bonds rose. The dollar fell against the euro and the yen.

The dour durable goods report joins other data ranging from employment to retail sales and manufacturing that have suggested the economy lost momentum at the end of the first quarter.

The government is expected to report on Friday that the economy grew at a 3.0 percent annual rate in the first quarter, according to a Reuters survey, rebounding from a paltry 0.4 percent gain in the final three months of 2012.

Economists, however, are looking for an expansion of only around 1.5 percent or so in the April-June period.

The slowdown, which economists have dubbed the spring swoon, has been largely blamed on belt tightening in Washington as the government tries to slash its bloated budget deficit.

Uncertainty over the impact of deep government spending cuts, known as the sequester, could be making businesses more cautious about rolling out capital projects.

Last month, non-defense capital goods orders excluding aircraft, a closely watched proxy for business spending plans, edged up 0.2 percent.

Orders for the so-called core capital goods had dropped 4.8 percent in February and economists had expected a 0.4 percent increase last month.

Core capital goods shipments, used to calculate equipment and software spending in the gross domestic product report, rose 0.3 percent. That followed a 1.2 percent rise in February.

While the second straight month of gains in shipments suggested business spending would again contribute to growth in the first quarter, the drop in orders in March signals weakness ahead.

Financial data firm Markit said on Tuesday its preliminary factory purchasing managers' index hit a six-month low in April. Regional manufacturing surveys have also taken a weaker tone this month.

Demand for transportation equipment plunged 15 percent in March, pulled down by sharp declines in orders for both civilian and defense aircraft.

Boeing received orders for only 39 aircraft, down from 179 in February, according to information posted on its website.

There were only gains in orders for motor vehicles and computers and electronic products.

REUTERS