Purchases of long-lasting manufactured goods in March jumped by the largest amount in eight months, but a closer look at the details reveals that businesses kept pruning their investment plans in the face of a softening U.S. economy.
Orders to factories for durable goods rebounded 4 percent in March after a 1.4 percent decline in February, the Commerce Department reported Friday. The result was led by a big jump in demand for commercial aircraft. Outside of the transportation category, however, orders fell for a sixth straight month.
More worrying was a 0.5 percent drop in demand in a key category that serves as a proxy for future business investment. The retreat followed a 2.2 percent drop in February and marked the seventh straight monthly decline.
"The report was yet another false positive that looks good in the headline but is eroding away underneath," said Michael Montgomery, U.S. economist with IHS Global Insight.
U.S. manufacturers were hurt by a labor dispute at West Coast ports that disrupted supply chains in the early part of the year. They were also hit with winter weather in many parts of the country that was harsh enough to disrupt production.
Manufacturers have also been grappling with a sharp rise in the value of the dollar, which cuts into exports by making U.S. goods more expensive overseas. A stronger dollar also makes imports cheaper and more competitive in the United States.
The report is "reflective of the impact of a stronger dollar that tends to hit larger firms and exporters," said Scott Brown, chief economist at Raymond James Financial Inc. in St. Petersburg, Fla. "Put together with the drop we're seeing in the energy sector, it all adds up to a weak quarter."
Demand for commercial aircraft, a volatile category, jumped 30.6 percent in March after a 2.2 percent decline in February. Orders for motor vehicles rose 5.4 percent, and the overall transportation category expanded 13.5 percent. Excluding transportation, however, the weakness was widespread, with orders down 0.2 percent.
Demand for primary metals such as steel edged down 0.2 percent, while orders for machinery dropped 1.5 percent. Demand for communications equipment fell 5.3 percent. Orders for computers and related equipment rose 11 percent in one of the few areas of strength in March.
Economists believe that overall economic growth slowed to between 1 percent and 1.5 percent in the January-March quarter. They are forecasting a rebound to growth of around 3 percent for the rest of this year.
Automobile demand remains a bright spot for factories. Sales of cars and light trucks rose to a 17.05 million annualized rate in March from 16.2 million the previous month, according to Ward's Automotive Group.
Orders for automobiles increased 5.4 percent last month, the most since July, Friday's report said.
Some companies are detecting gains in parts of the economy. Caterpillar Inc., the largest construction equipment-maker, raised its full-year earnings forecast after North American sales improved and its energy and transportation business sold a greater volume of machinery. Although below previous peaks, activity in construction is improving, it said.
Information for this article was contributed by Martin Crutsinger of The Associated Press and by Shobhana Chandra and Victoria Stilwell of Bloomberg News.
Business on 04/25/2015