New orders for long-lasting U.S. goods increased only slightly in February, signaling that economic growth in the first quarter could be tame following December’s expiration of a tax incentive.
The Department of Commerce’s data showed that goods orders rose 2.2 percent last month to $211.8 billion, only partially reversing January’s 3.6 percent sharp decline.
Following last month’s drop, economists had forecasted a 3 percent headline gain according to a Bloomberg survey. Excluding extreme volatile sectors like defense and Boeing commercial aircrafts—which highly influence the indicator—estimates of overall orders narrowed at 1.7 percent, which was just slightly above the 1.6 percent gain.
While the report showed a general surge in manufacturing, economists remained “disappointed” and “unimpressed.”
“It was much weaker than we expected,” said Michael Feroli, Chief Economist at JP Morgan. “This increase is definitely not enough to offset January’s decline.”
Last year, businesses benefited from a tax credit, which allowed companies to write off 100 percent of new purchases and boosted capital goods orders nearly 3 percent – an all time high for December. Since its expiration at the end of 2011, firms are now writing off only 50 percent of their purchases – which has analysts believing is one of the reasons why orders dipped so low in January.
“Businesses really took advantage of the tax incentive last year,” said Scott Anderson, Analyst at Wells Fargo. “It is expected that a slower growth would occur now.”
At the same time, with crude oil reaching $107.33 a barrel — a 25 percent increase in the last three months – the transportation of goods has become more costly for international consumers –which economists believe also has affected demand from overseas.
“Considering the global economic slowdown and higher fuel costs, our goods just aren’t selling to their potential abroad,” said Jacob Oubina, Senior U.S. Economist at RBC Capital Markets.
Although economists expressed discontentment with the overall orders increase, they agreed that the numbers were “hopeful” because of the consisting –yet small—demand for core capital goods –a worthy measure of businesses’ future investment plans.
Growing auto sales and the recent need for updated equipment – which companies delayed during the recession—have increased production this past month.
The 1.2 percent increase was largely led by demand for cars, computers, and machinery.
Orders rose by 1.6 percent for cars—the most since October—2.7 percent for computers and 5.7 percent for machinery. The biggest increase, however, was seen by communications equipment, jumping to 11.2 percent – its highest record since June 2011.
Nonetheless, economists say the latest durable goods orders numbers hint that growth will slow in the first quarter to a 2 percent annual rate – which is seen as too little to lower unemployment.
U.S. Federal Reserve Chairman Ben Bernanke said on Tuesday that it was too soon to declare victory on the economic recovery and that with unemployment remaining high at 8.3 percent, boosted growth was not yet guaranteed.
However, economists remain optimistic for the expansion of manufacturing in the U.S. With orders increasing four times out of the 5 previous months, the trend still remains positive. While they expect the numbers to continue, they presume it to do so moderately– between 5 to 15 percent instead of 10 to 20 percent.