Durable goods orders jump 1.8% due to demand for military, commercial aircraft

February 27, 2017

U.S. businesses in January boosted their orders for long-lasting manufactured goods by the largest amount in three months, but a key category that tracks business investment plans slipped.

Orders for durable goods rose 1.8% in January after two months of declines, the Commerce Department said Monday. The strength stemmed from a big surge in demand for commercial aircraft and military aircraft. Excluding the transportation category, orders actually fell 0.2%, the weakest showing since June.

Demand in a category that tracks business investment plans fell 0.4%, the first decline since September. Analysts believe that business investment will strengthen this year as the manufacturing sector recovers from two years of lackluster gains.

“The manufacturing sector and capital spending are recovering quite strongly as the hit from the collapse in the oil sector begins to reverse,” said Ian Shepherdson, chief economist at Pantheon Macroeconomics.

Sal Guatieri, senior economist at BMO Capital Markets, said the strength seen in durable goods followed recent gains in such areas as consumer spending and home sales. He said he looked for overall growth to accelerate to above 2% in the current January-March quarter.

Manufacturing firms have struggled since 2015 with a rising value of the dollar, which makes exports more expensive. In addition, a plunge in oil prices triggered sharp cutbacks in investment spending at energy companies. However, in recent months the dollar has stabilized and oil prices have resumed rising, developments that are expected to benefit exports and domestic investment.

Growth in the overall economy slowed to an annual rate of just 1.9% in the final three months of last year. The government will revise its initial estimate on Tuesday. Stronger consumer spending is expected to lift fourth-quarter growth to slightly above 2%.

Growth has averaged annual rates of around 2% over the last seven years as the country has struggled to emerge from the deepest recession since the 1930s.

President Trump campaigned on a pledge to double growth rates to 4% or better. Treasury Secretary Steven Mnuchin has said that the administration’s economic proposals of tax reform and deregulation should boost growth to 3% or better, although he has said the improvements may not been seen until next year.

Durable goods are items intended to last at least three years, such as household appliances and cars.

For January, orders for commercial aircraft rose 69.9%, while demand for military aircraft increased 59.9%. Orders for machinery were up a modest 0.5%. Demand for computers rose 3.9%.

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