BUSINESS

US durable goods orders post biggest gain in 8 months, but investment keeps heading south

04/24/2015 10:48 EDT | Updated 07/22/2015 04:59 EDT
WASHINGTON - Purchases of long-lasting manufactured goods in March jumped by the largest amount in eight months, but a closer look at the details reveals that businesses kept pruning their investment plans in the face of a softening U.S. economy.

Orders to factories for durable goods rebounded 4 per cent in March after a 1.4 per cent decline in February, the Commerce Department reported Friday. The result was led by a big jump in demand for commercial aircraft. Outside of the transportation category, however, orders fell for a sixth straight month.

More worrying was a 0.5 per cent drop in demand in a key category that serves as a proxy for future business investment. The retreat followed a 2.2 per cent drop in February and marked the seven straight monthly decline.

"The report was yet another false positive that looks good in the headline but is eroding away underneath," said Michael Montgomery, U.S. economist with IHS Global Insight.

U.S. manufacturers have been hurt by a labour dispute at West Coast ports that disrupted supply chains in the early part of the year. They were also hit with winter weather in many parts of the country that was harsh enough to disrupt production.

Moreover, manufacturers have been grappling with a sharp rise in the value of the dollar, which cuts into exports by making U.S. goods more expensive overseas. A stronger dollar also makes imports cheaper and more competitive in the United States.

Demand for commercial aircraft, a volatile category, jumped 30.6 per cent in March after a 2.2 per cent decline in February. Orders for motor vehicles rose 5.4 per cent, and the overall transportation category expanded 13.5 per cent. Excluding transportation, however, the weakness was widespread with orders down 0.2 per cent.

Demand for primary metals such as steel edged down 0.2 per cent, while orders for machinery dropped 1.5 per cent. Demand for communications equipment fell 5.3 per cent. Orders for computers and related equipment rose 11 per cent in one of the few areas of strength in March.

Economists believe that overall economic growth slowed to between 1 per cent and 1.5 per cent in the January-March quarter. They are forecasting a rebound to growth of around 3 per cent for the rest of this year.