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US durable goods orders rise on aircraft demand

March 26, 2013

WASHINGTON (AP) — A surge in commercial aircraft demand pushed orders for U.S. long-lasting manufactured goods up sharply in February. The gain offset a steep drop in orders that signal company investment plans, although economists viewed the decline as a temporary setback.

The broader trend in business investment remains favorable, they noted, and should add to growth in the January-March quarter.

“The picture of business spending to start the year is fairly healthy,” said Dan Greenhaus, chief global strategist at BTIG

Overall orders for durable goods surged 5.7 percent in February from January, the Commerce Department said Tuesday. It was the biggest monthly increase in five months.

A rebound in volatile commercial aircraft orders drove the gain. Those orders rose 95.3 percent after a 24 percent drop in January.

Orders for motor vehicles and parts rose 3.8 percent, the best showing since July. Excluding the volatile transportation sector, orders were down 0.5 percent.

Durable goods are products expected to last at least three years. Orders can fluctuate sharply from month to month.

Economists pay closest attention to orders for so-called core capital goods, which strip out volatile aircraft and defense orders and provide a better indication of the trend in business investment.

Those orders declined 2.7 percent in February from January. Demand weakened for machinery and communications equipment, but rose for computers. Still, the decline followed a 6.7 percent surge in January, which was the biggest one-month gain in nearly three years. Prior to February’s decline, the category had risen in three of the previous four months.

Greenhaus said that if the big swings in January and February were averaged, orders looked solid for the first two months of the year. He estimates that core orders risen at about a 5 percent rate compared with the final three months of last year.

Peter Newland, an economist at Barclays, said the strength shown in the durable goods report had prompted a slight revision in expectations for overall economic growth in the first quarter to a rate of 2.6 percent, up 0.1 percentage point from the previous estimate.

Many economists were expecting a decline in the core capital goods after January’s impressive gain. The broader trend has been favorable, even with uncertainty surrounding tax and spending policies. Core capital goods orders dipped in December but posted strong gains in November and October.

Nearly all Americans who draw a paycheck began paying higher Social Security taxes on Jan. 1 while income taxes rose for the highest earning workers. And $85 billion in automatic spending cuts started to take effect on March 1, reductions that will mean furloughs and other cutbacks for many government agencies.

The Congressional Budget Office has estimated that the combination of higher taxes and spending cuts will trim overall economic growth by 1.5 percentage point this year. The CBO is estimating the economy will grow 1.5 percent in 2013.

U.S. manufacturing is likely to help the economy grow this year after struggling throughout 2012.

The Institute for Supply Management reported that its index of manufacturing activity grew in February at the fastest pace since June 2011, bolstered by increases in orders and production. It was the third straight month of growth in this index.

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