Decline in U.S. Durable Orders Smaller than Expected
Decline in U.S. Durable Orders Smaller than Expected
Durable good new orders for March declined 0.8%; expectations had been for an even greater drop of 1.5%. Offsetting the good news in March, the February increase was lowered to 2.1% from a previously estimated 3.5%. However, the drop in March reversed less than one-half of the gain in February’s gain.
Declines in March were relatively broadly based. However, in many cases this weakness followed sizeable gains in February. For example, capital goods were down 0.8% in March following a 8.9% surge in February. Similarly, orders of computer and general machinery products fell 2% and 0.1%, respectively, in March after much stronger February gains of 11.9% and 7.1%. Even more encouraging, non-defence capital goods new orders ex aircraft, which is viewed as a leading indicator of investment activity, rose 1.5% in March, which built further on to the 4.3% gain in February. This measure did fall a massive 12.3% in January, which implies that first-quarter capital spending on equipment and software (E&S) will likely be very weak. This is consistent with our current monitoring of an annualized drop of 32.9%. However, gains during the latter part of the quarter bode well for a lessening of the weakness in the second quarter. In fact, today’s data suggest some upside risk to our monitoring for the second-quarter contraction in investment spending on E&S of 19%.
Today’s report provided less positive news on shipments, which were down 1.7% in March and followed declines of 0.8% and 5.5% in February and January, respectively.
Today’s report is consistent with a number of other recent releases that are suggesting a possibly lessening of declines as we move through 2009. However, data is still indicative of an economy showing sizeable declines in activity. Thus, monetary policy will likely remain very accommodative, with Fed funds being maintained within its current range bordering on 0%. As well, the central bank will continue to monitor the health of various financial markets with the readiness to provide funds in the face of persisting illiquidity.
RBC Financial Group
http://www.rbc.com
The statements and statistics contained herein have been prepared by the Economics Department of RBC Financial Group based on information from sources considered to be reliable. We make no representation or warranty, express or implied, as to its accuracy or completeness. This report is for the information of investors and business persons and does not constitute an offer to sell or a solicitation to buy securities.
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