By Taylor Hall
Despite a drop in volatile aircraft orders that sent durable goods down slightly in April, economists said a strong rise in business investment was a positive sign for the economy.
The U.S. Department of Commerce report Tuesday showed new orders for manufactured durable goods, including items like dishwashers, computers and machinery, fell 0.5 percent, compared with an upwardly revised 5.1 percent gain in March.
[field name=”U.S. Durable Goods 4/2015″]
However, new orders for core capital expenditures excluding volatile defense and aircraft jumped a better-than-expected 1 percent for a second consecutive month. This growth outpaced economists’ consensus estimate of 0.3 percent, according to Bloomberg LP.
Stan Shipley, research analyst at Evercore ISI Institutional Equities, said the report took the economy a step towards better economic growth, noting that the downturn in durable goods orders since last July is probably over.
“The manufacturing sector this winter was clearly weaker than expected, but over the last two months it has posted better than expected gains,” Shipley said.
Shipley pointed to a 1.6 percent jump in shipments in April for nondefense capital goods as further evidence of the economic uptick.
Aircraft orders were down, with nondefense aircraft and parts orders falling 4 percent after jumping 40.7 percent in February. New orders for transportation equipment, computers, and electronic products also fell after rising last month.
Notably, machinery shipments and orders, which had been hit earlier in the year by the downdraft in oil industry investment, showed increases for both March and April.
“That could mark a turning point in business investment and validates our view that we will see a modest rebound in business investment in the second quarter after suffering a decline in business investment in the first quarter,” said Diane Swonk, Chief Economist and Senior Managing Director of Mesirow Financial.
She noted that though business investment has suffered from cuts across the oil sector, “an increase in orders in April and March might suggest that the worst of those losses are behind us.”
Swonk was cautious about the path ahead for business investment.
“Business investment has a long way to go, however, to pick up enough for us to declare victory over the Great Recession and be reassured about where we are going,” she said.