By Shen Lu
U.S. durable goods orders rose 1.8 percent in January after two months of declines.
Orders increased by a seasonally-adjusted $4.0 billion to $230.4 billion last month, following a revised 0.8 percent decline in December, the U.S. Department of Commerce reported Monday. Durable goods are items supposed to last longer than three years.
The January increase, largely driven by a surge in aircraft orders, beat the median estimate of 1.7 percent from economists surveyed by Bloomberg.
Excluding the volatile transportation-related orders, new orders for durable goods fell 0.2 percent, the first decrease since last June. But economists said the January figures fell largely in line with the overall outlook for the economy: it continues to pick up.
New orders for computers and electronic products and for primary metals both fell 1.6 percent, while demand for other items in the non-transportation category increased.
Orders for fabricated metal products rose 1.9 percent. Demand for machinery increased 0.5 percent, a sign of manufacturing improvement, said Andrew Opdyke, economist at Wheaton-based First Trust Advisors LP, in a phone interview.
The U.S. manufacturing sector has struggled with a strengthening dollar, which makes exports more costly, and a decline in oil prices since 2014 that caused energy companies to cut back investment and spending. However, the resuming rise of oil prices in recent months has led to increases in machinery orders, Opdyke said, and he expects the number to steadily climb in the coming months.
“If companies are expecting to have increased production or feel confident about the business environment, they are going to purchase new equipment, they are going to build new factories,” Opdyke said. “So those types of investments should show up in the machinery orders.”
Shipments of nondefense capital goods excluding aircraft, a key input into the GDP calculation, fell 0.6 percent in January, but was still above the levels seen in November and October.
“Assuming that number is unchanged over the next two months, doesn’t decline, doesn’t rise, then we are going to see about 2.8 percent growth from the durable goods sector as part of the GDP,” Opdyke said. “So it would be an upward push on GDP.”
However, uncertainties around trade policies under Donald Trump’s administration make manufacturers and durable goods producers hesitate to invest at the moment, Opdyke said. Businesses and economists are all keeping an eye on the policies to come out of Washington. “We think from a business standpoint, some of the reduced regulation and lower taxes has the potential to increase spending, get companies investing, get companies hiring. And if they are hiring, then people have wages, and they can spend.”
Opdyke said the administration policies are more likely to provide a tailwind than a threat.
“Now the economy looks like it’s a little bit better shape than it’s been in recent years,” he said. “We are hoping to see it continue to move a little higher.”