BUSINESS

Orders for US long-lasting factory goods fall sharply on drop in aircraft demand

04/24/2013 08:49 EDT | Updated 06/24/2013 05:12 EDT
WASHINGTON - Orders for long-lasting U.S. factory goods fell in March by the most in seven months. The drop reflected a steep decline in commercial aircraft demand and little growth in orders that signal future business investment.

The Commerce Department said Wednesday that orders for durable goods declined 5.7 per cent in March. That followed a 4.3 per cent gain in February, which was revised lower.

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

So-called core capital goods, which include industrial machinery and computers, ticked up 0.2 per cent. Economists pay close attention to these orders because they strip out more volatile defence and aircraft orders and are a good measure of companies' investment plans.

The March increase in both orders and shipments of core capital goods suggest businesses spent more on equipment and software in the January-March quarter. That likely contributed to economic growth in the first quarter.

Still, most of the gain was from a huge increase in January. Orders fell sharply in February and rose only slightly last month. That indicates businesses may be spending less on equipment in the April-June quarter, economists said.

"There was a clear weakening in orders as the first quarter went on," Paul Ashworth, an economist at Capital Economics, said in a note to clients.

The overall decline in durable goods was exacerbated by a 48.2 per cent fall in commercial aircraft orders. Boeing Co. reported that it received orders for only 39 aircraft, compared to 179 in the previous month. Still, even excluding aircraft and transportations demand, orders dropped 1.4 per cent, the second straight decline.

Demand fell in most types of goods. Orders dropped for metals such as steel and aluminum, metal parts, electrical equipment and appliances, and defence aircraft. Orders increased for computers and communications equipment.

The economy likely grew at a healthy 3.1 per cent annual rate in the first quarter, up from only a 0.4 per cent rate in the fourth quarter. The Commerce Department will release its first estimate for January-March growth on Friday.

But many economists expect growth has begun to slow to a rate of 2 per cent or less in the current April-June quarter.

One reason is Social Security taxes have reduced Americans' take-home pay this year. That's starting to limit their spending power.

Also, across-the-board government spending cuts that began on March 1 will likely weigh on growth, including manufacturing.

Other reports suggest that manufacturing is starting to weaken after showing signs of strength over the winter. Strong auto production hasn't been enough to offset broader slowdowns in other industries.

Factory output slipped in March, according to a Federal Reserve report last week. And a survey of purchasing managers earlier this month found that manufacturing expanded at a slower pace in March compared with February. The Institute for Supply Management's survey showed that new orders and production declined sharply.