New orders for durable goods placed fell in January, indicating a slow economic start for business investments this year.

According to a report released by the Commerce Department on Tuesday, new orders for durable goods decreased 3.7 percent in January, following two back-to-back increases in November and December.  

“We’re experiencing a little bit of a hangover from the second half of last year when business investment was very strong,” said Ryan Sweet, Economist at Moody’s Analytics Inc.

Back in 2017, business investments experienced fast-paced increases of new orders for durable goods, indicating healthy signs of strength for American Industries. Economists speculated the results were due to the anticipated tax-relief package pushed by the Trump Administration in order to influence further investment.

New orders excluding transportation decreased 0.3 percent as well as new orders excluding defense by 2.7 percent. The report indicates that the slow economic start of 2018 was caused by tremendous drops in demand for both transportation equipment (-10%) and defense capital goods (-26.3%).

Manufacturers’ New Orders: Durable Goods

But some economists are expecting durable goods to increase in the coming months as more companies move to take advantage of the tax bill.

“We think real equipment spending will be up around 8% during the quarter, despite uninspiring data on core capital goods shipments reported in recent months,” said Daniel Silver, Economist at JP Morgan, who thinks the January number is an aberration.

Similar reports on business spending indicate mixed results. An industrial production report released by the Federal Reserve indicates business equipment experienced an increase of 0.9 percent in January, following a 0.3 percent decrease in December. Meanwhile, the Institute for Supply Management, a non-profit organization, reported the index for new manufacturing goods orders decreased in January after highly rising back in December.

On the other hand, shipments for core capital goods experienced a 0.4 increase, following a decrease of 0.1 percent in December. The result indicates demand for core capital goods being met has begun to pick up once again since November. New orders for nondefense capital goods excluding aircraft did experience a 0.2 percent decrease while shipments a 0.1 increase.

According to Alex Lin, Economist at Merrill Lynch, new orders for nondefense capital goods is expected to accelerate relative to last year. He says, “on the broader outlook, we are still positive on capex (capital expenditure) demand this year.”

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