New orders for US durable goods increased more than expected last month, indicating business investments have begun to pick-up after a slow economic start.
New orders for durable goods increased 3.1 percent in February the Commerce Department reported Friday, rebounding from a decline of 3.5% in January.
“We may still see some volatility in the months ahead but the trend is going to continue in a positive direction,” said Andrew Opdyke, Economist at First Trust Portfolios LP, who expects durable goods orders will experience constant increase this year.
Though business investments experienced a slow start back in January, economists expected the number to increase the following month by approximately 1.6 percent. However, February’s number exceeded their expectation. It is speculated the outcome is the result of the new tax plan implemented by the Trump administration to influence more investments.
In addition to the increase in demand, private manufacturing businesses specializing in durable goods also added 32,000 new jobs in February according to the U.S. Department of Labor. All, indicating signs of strength for the American manufacturing industry.
“Because the economy is running pretty good right now, I’m seeing increases in orders made by my clients,” said Jerry Guest, 56, owner of Metal Manufacturing Company Inc. A small private company in Sacramento, Calif., that specializes in manufacturing commercial metal doors and frames.
New orders excluding transportation also increased by 1.2 percent as well as new orders excluding defense by 2.5 percent. February orders were lifted by tremendous increase in demand for nondefense (25.5%) and defense (37.7%) aircraft orders, as well as defense capital goods (16.5%) orders.
Manufacturers’ New Orders: Durable Goods
But as small manufacturing businesses benefit from the overall economic growth, the Trump Administration’s recent announcement to implement tariffs on steel and aluminum have begun to cause concerns.
According to Guest, the cost for steel has already gone up 10 cents a pound in California, and its suppose to go higher. As a result of the outcome, he is forced to change his prices. Jerry is worried the recent tariffs will slow the economy down and affect his business overall.
“Originally it went to 49 cents a pound, now we’re at 62 cents,” said Jerry. “Figured the math, it’s about an $8,000 difference and it’s supposed to go higher that’s what our steel people say here in California.”
Other reports on business spending indicate similar results. An industrial production report released by the Federal Reserve shows business equipment registered a gain of one percent in February, following a revised 0.1 decrease in January. Meanwhile, the Institute for Supply Management, a non-profit organization, indicate a very slow growing index for new manufacturing goods orders since December 2017.
On the other hand, shipments for core capital goods experienced another increase by 0.6 percent since January. The result indicates demands for core capital goods being met continues to pick up. Both new orders and shipments for nondefense capital goods excluding aircraft also experienced increases of 1.8 and 1.4 percent.
“With the new tax plan and the budget bills, those will add further to the overall economy which should boost appetite for capital expenditures,” said Alex Lin, economist at Merrill Lynch, who thinks this month’s report goes back to cap ex having a positive outlook