In some good news for the economy, the U.S. Commerce Department reported earlier this morning that orders for durable goods, which are usually big-ticket items designed to last several years, had jumped up smartly in April gaining a much better-than-expected 3.3% during the month. That gain was more than three times the expected increase of 1.0%, and served to underscore the continuing volatility in the now-mature business expansion.
All told, the 3.3% gain in April was dramatically better than the downwardly revised 5.9% decline registered in March, which had been initially reported as a 5.8% setback.
Meanwhile, the gains last month were spread across several key lines, including defense aircraft and parts, which surged by more than 50%, and civilian aircraft, which jumped by just over 18%. If we back out the notoriously volatile transportation sector, we find that orders were up a much more modest 1.3%.
Also, orders for non-defense capital goods, excluding aircraft, rose by 1.2% in April. This is a key measure of investment spending, or capital goods demand. This latest and fairly upbeat survey on durable goods orders was most welcome, as manufacturing has been one of the more recently weaker economic components. Of note here, a report issued earlier this month from the Federal Reserve noted that overall manufacturing output had contracted by 0.4% last month, while early this month the nation's purchasing managers had noted a slower rate of growth in this critical sector.
On the other hand, the data from the consumer sector has been somewhat more reassuring, although even here retail activity has been rather mixed.
As to other components in the survey, we saw new orders for manufactured goods rise nicely last month, while demand for both fabricated and precious metals edged modestly higher. Machinery, too, did well, climbing 4.6% in April, as did demand for electrical equipment and appliances, which rose moderately. The lone area not participating in the upturn was orders for computers and related products, which dropped 3.7%.
Although this is a most volatile series, largely reflecting the big impact from large and often unpredictable swings in orders for costly aircraft, this latest snapshot of the economy must be considered as somewhat reassuring. However, it is not material enough, in our view, to alter the likelihood that second-quarter GDP growth will slow into the 1%-2% range.
At the time of this article's writing, the author did not have positions in any of the companies mentioned.