U.S. durable goods orders fall; labor market tightening

March 24, 2016 09:05 AM

New orders for long-lasting U.S. manufactured goods fell in February as the sector continues to struggle with the lingering effects of a robust dollar and lower oil prices.

While other data on Thursday showed an increase in the number of Americans filing for unemployment benefits last week, revisions to the prior weeks' figures showed the labor market was much stronger than previously thought.

The labor market resilience underscores the economy's strength, which has helped calm concerns of a looming recession. That could keep the Federal Reserve on course to gradually raise interest rates this year.

The Commerce Department said orders for durable goods, items ranging from toasters to aircraft meant to last three years or more, declined 2.8% last month after a downwardly revised 4.2% increase in January.

Non-defense capital goods orders excluding aircraft, aclosely watched proxy for business spending plans, decreased 1.8% after advancing by a downwardly revised 3.1% in January. These so-called core capital goods orders were previously reported to have increased 3.4% in January.

Economists polled by Reuters had forecast durable goods orders falling 2.9% last month and orders for core capital goods slipping 0.1%.

The dollar dipped against a basket of currencies after the data. U.S. stock futures were down, while prices for Treasuries were mixed.

Solid labor market

In a separate report, the Labor Department said initial claims for state unemployment benefits rose 6,000 to a seasonally adjusted 265,000 for the week ended March 19.

The government also revised data going back to 2011, which showed claims trending lower than previously reported. Claims for the week ended March 5 were the lowest since November 1973.

Last month's drop in durable goods orders bucks recent data that have suggested the downward spiral in manufacturing was close to an end. Several reports in recent days have shown a pick-up in regional factory activity in March, leading to optimism that a broader manufacturing survey will show the sector expanded this month for the first time since September.

Manufacturing, which accounts for 12% of the U.S.economy, has been hammered by the strong dollar, weak globaldemand and capital spending cuts by oilfield service firms likeSchlumberger and Halliburton.

Efforts by businesses to sell unwanted inventory have also meant fewer orders placed, adding to pressure on factories. But the dollar's gains versus the currencies of the United States' main trading partners have slowed since the start of the year and the oil price slide has become less pronounced.

The drop in durable goods orders last month was led by a 27.1% plunge in civilian aircraft orders, which contributed to a 6.2% drop in bookings for transportation equipment.

Orders for primary metals, fabricated metal products, machinery, computers and electronic products as well as electrical equipment, appliances and components also fell. Orders for motor vehicles and parts rose 1.2%.

Shipments of core capital goods - used to calculateequipment spending in the gross domestic product report – fell 1.1% last month after sliding 1.3% in January.

The drop in shipments in February could prompt economists to trim first-quarter GDP growth estimates, which are currently around a 2% annualized rate. The economy grew at a 1.0% rate in the fourth quarter.

Unfilled durable goods orders fell 0.4% last month after being unchanged in January. Durable goods inventories fell 0.3% and are now down in seven of the last eight months.

About the Author