Durable Goods Increase, But Hope For Quarterly Growth Evaporates

Orders for durable goods rose unexpectedly in the month of April, but the news wasn’t all optimistic in the Commerce Department report Tuesday. A larger-than-expected fall in a measure of business capital spending plans will likely squash hopes of a rebound in economic growth this quarter.

The Commerce Department said Tuesday durable goods orders increased by 0.8 percent, fueled by demand for defense capital goods and other fabricated metal products, transportation equipment and electrical equipment. Appliances and components also rose.

Durable goods are classified as products meant to last three years or more, and they increased by a revised 3.6 percent in March. Economists had expected orders to fall by 0.5 percent after a previously reported 2.5 percent rise in March.

“We are the same track as we were before, which is still a slow track. There is not a dramatic case for companies to expand capacity because they don’t think the economy will improve dramatically,” said Mark Vitner, a senior economist at Wells Fargo Securities in Charlotte, North Caroline.

The closely scrutinized non-defense capital goods orders excluding aircraft fell by 1.2 percent after rising by a revised 4.7 percent in March. Even though March was the largest gain since November, the news bodes bad for business spending plans,

The revision was an increase from the previously reported increase of 2.9 percent in March.

Following the report, prices for U.S. Treasury debt fell, thought the dollar gained against the euro.

Meanwhile, home prices continued to increase in the month of March, which in other economic condition would be celebrated. But affordability is a concern is this weak economy, as rising home prices and even slight increases in mortgage rates are detrimental to home sales.

The Standard & Poor’s/Case Shiller gauge of house prices in 20 metropolitan areas increased 12.4 percent in March, compared to just one year ago.

As a result of Tuesday’s durable goods report, Wall Street will likely cut expectations for a rise in economic growth in the second quarter. The economy fell flat on its face in the first three months of the year, with the initially-reported and anemic 0.1 percent growth being cut after further data showed a likely contraction.

Core capital goods shipments fell 0.4 percent last month. Shipments of core capital goods are used to calculate equipment spending in the government’s GDP measurement. They increased 2.1 percent in March.

While the durable goods report is volatile month-to-month, the overall trend shows businesses are placing smaller and fewer orders, while holding an inventory of goods amassed in the second half of 2013. Last month, durable goods inventories rose 0.1 percent after increasing 0.2 percent in March.

Orders for defense capital goods jumped 39.3 percent, which was the largest rise since December 2012. Civilian aircraft orders and automobiles both fell. Orders excluding transportation barely rose by just 0.1 percent, following an increase of 2.9 percent in March.

There were declines in orders for machinery, primary metals and computers and electronic products.