Low oil prices and weak global economies play major roles as new orders declined for durable goods last month, which was the third drop in the last four months.

The headline figure for the new orders of these long lasting manufactured goods fell 2.8 percent. While this did not surprise most economists, they were disappointed in the 1.8 percent drop in core capital goods from 3.1 increase in January.

The latest data reduces the prospects of business investment in the first quarter and people will be marking down their quarterly GDP forecasts, said David Sloan, economist at 4cast LLC.

“I think the main concern is the weak export outlook given the economic problems oversees,” said Sloan.

U.S. exports have fallen due to major headwinds like the struggling energy sector, weak Chinese economy and a strong dollar that continues to hurt manufacturing.

The industrial sector in China has developed excess capacity over the past 20 years and it now has to reduce, said economist Daisuke J. Nakajima at International Strategy and Investment, explaining a reason behind China’s slowing economy.

“So we are going through some of the adjustment phase right now,” Nakajima said.

The strong dollar also reduces the demand for goods made in the U.S. especially in times of overall weak global demand. Combined with falling oil prices, the manufacturing sector has been struggle to grow.  

But while low oil prices hurt the sector, there are some winners. James Grenier, owner of Air Nation, sells and repairs air conditioners, said savings from low oil prices helped him stay in business even though the manufacturing companies raised on ACs prices last year.

“They definitely increased by 17 percent,” said Grenier. “They say manufacturing cost is going up.”

Due to increasing competition, he could not increase his prices similarly and so raised them to five percent, said Grenier. What helped him do business at that cost was the savings he made in gas prices.

“If I had five guys working, every time they drove out to a customer, it would cost me something like $1000 and now it’s almost down to $500,” said Grenier.

If oil prices, global demand and the dollar show signs of improvement, then the manufacturing sector will show growth, said Nakajima.

But there have already been signs of growth in manufacturing according to regional surveys like reports from Federal Reserve Banks of Philadelphia, New York and Richmond.

In New York, the headline general business conditions in manufacturing climbed 17 points, its first positive reading since July of last year. These positive reports are why economists expected a better performance from core capital goods in February.

“I think the improvements in the regional manufacturing surveys actually came more noticeably in March than February,” said Sloan. “I think the regional surveys are hinting that we could get a stronger March,”

The weak durable goods report reduces the possibility that the Federal Reserve will change the interest rates anytime soon. Economists say there will definitely be an increase this year, what remains to be seen is when.


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