Durable goods orders plummeted a jaw-dropping 4.2% in March, after a slight downward revision for February. Much of the big fall may be attributed to a drop in orders for non-defense aircraft and parts, which are extremely volatile and still coming off highs set near the turn of the year.
Capital goods orders, which more closely track business investment, fell an even sharper 8.9% last month. Again, much of the weakness occurred in aircraft orders. Capital goods orders posted a small decline of 0.8%, however, even after defense and aircraft orders were stripped from overall measures of capital equipment orders. Moreover, the weakness in orders was fairly broad-based, with the only outsized gain occurring in electronic equipment, components and appliances. This flies in the face of first quarter manufacturing profits, which suggested that the broader manufacturing sector might be more sheltered than many had feared from the slowdown in Europe and more recently, China.
Shipments, which are more backward than forward looking, held up better; non-defense capital goods shipments rose 2.0% in March compared to February, and posted a gain for the first quarter overall.
Bottom Line: The recovery is still not showing the momentum we should be seeing at this point, particularly in investment, which should be benefiting more from the cash mounting on corporate balance sheets. This is one of the many reasons that voting members of the Federal Reserve feel justified in the current, easy monetary policy stance. The threshold for additional easing remains extremely high, however, as even the Fed is unsure about how much more it can do to offset the ongoing uncertainty in the economy, let alone that fueled by politicians in an election year.