The Commerce Department releases its advance report on durable goods – a key indicator of future manufacturing activity – on Monday. The report, based on results obtained from 4,300 manufacturers, is expected to provide more proof that the economy is ramping up faster than anticipated.
Here are five things to watch in Monday’s report.
1. All eyes are on transportation
The biggest gains will be in transportation thanks to new orders from Boeing. Now that the safety ban on the 737 MAX has been lifted and more people are comfortable traveling as vaccination efforts expand, the pace of orders at Boeing should pick up in the months ahead. Manufacturers’ new orders for nondefense aircrafts and parts have climbed every month since June 2020 except for December. Orders in March may continue to rise, but it’s worth noting how volatile this durable goods category is.
“Even if it hadn’t been for Boeing, there was probably risk of a substantial updraft in all of the durables paid in March. We’ve got that factor offsetting this february drop combined with the big bounce in the Boeing data,” said Michael Englund, chief economist at Action Economics.
2. Motor vehicles may continue to stall
While transportation equipment is expected to rise thanks to Boeing, economists expect its gains to be partially offset by vehicle orders and shipments. The semiconductor chip shortage has caused plant shutdowns and lower production of vehicles. Domestic auto production in the U.S. has been slowly declining since July 2020. Now that more items rely on semiconductors, auto manufacturers face more competition for the commodity. The shortage was made worse by a plant fire in Japan and the winter storm in the U.S. A report from IHS Markit, a research and analysis company, “believes the lingering effects of the chip shortage may cast a shadow as late as 2022.”
3. Expect a ripple effect from the housing market
Home sales across the U.S. are surging. This will continue to bolster orders for household goods even as consumer spending is expected to switch back to services. New home sales show the appetite of consumers to spend and make large big-ticket orders and the purchasing power to do so – a trend Robert Stein, deputy chief economist at First Trust Portfolios, expects to continue going forward.
4. Smart investments
Pressure on capacity should ease by the middle of the summer and incentivize businesses to invest. As a key indicator of future manufacturing activity, a strong durable goods order report for March – especially in terms of orders and shipments – would signal that future economic activity will continue to be robust as the economy roars back.
5. Economic implications
President Biden’s American Rescue Plan, greater vaccine distribution and easing of safety restrictions related to COVID-19 across the country are why economists expect the report to show the U.S. economy coming back to full strength. A negative or softer than expected report could point to lingering effects from February’s winter storm or supply chain problems. But a disappointing report won’t matter as the positive factors continue to outweigh the negative factors and propel the economy.