On Wednesday, the Census Bureau will release the advance report on durable goods, showing the level of manufacturing orders and shipments for March. Most economists expect to see a small increase in total new orders, with a survey by Bloomberg indicating an average forecast of +0.7%. 

Here are five things to watch in the March report:

Durable Goods Orders by Month

Chart of Durable Goods orders, showing a slight increase in March 2023.

  1. Expect a Rebound (But Not by Much)

While total orders are expected to rise, most of that bump will come from sales of civilian aircraft that were postponed from previous months. Outside the volatile category of transportation, new orders are expected to show only a marginal increase. This is consistent with the trend over the past year: after the pandemic boom, the monthly gains in manufacturing have trended lower.

That prompted some economists to predict a rebound, due to the falling baseline. But a slight increase could still be disappointing, according to Stephen Stanley, chief economist of Santander U.S. Capital Markets.

“These are in nominal dollars, so it doesn’t adjust for inflation,” Stanley explained. “I guess in some ways it would be a slight improvement, but it’s not something I’d get excited about.”

  1. High Borrowing Costs Are Continuing to Curtail Investments

Core capital goods are expected to show little or no growth in orders. That’s partly thanks to the Federal Reserve, which has raised its target rate repeatedly in its efforts to tame inflation. Those rate hikes make it more expensive for businesses to invest in new equipment. 

Another factor is the fear of a possible recession. Although economists are divided on the probability of a downturn, the prospect has spooked some businesses from investing in future production. “Obviously, if you don’t think your business is going to be particularly good going forward, you don’t want to put out a lot of money for new investments,” Stanley said. 

  1. Unfilled Orders Could Continue to Shrink

The number of unfilled orders started to decline in late 2022, after more than a year of steady growth. That could be a sign that activity is slowing, according to Tim Quinlan, senior economist at Wells Fargo, because a high level of unfilled orders can keep factories busy in the following months.

Factories accumulated large backlogs during the pandemic, as supply chain problems made it difficult to complete deliveries. But when the logistical issues began to resolve, many customers canceled their orders rather than pay for unneeded deliveries.

The value of unfilled orders started to fall in September, indicating that businesses are now shipping more orders than they receive. “You’ve just not seen the same kind of torrid pace of demand” that existed last year, Quinlan added. 

That means factories may find themselves with excess capacity—and perhaps, reasons to consider layoffs in the not-too-distant future.

  1. Defense Orders Could Increase, But Don’t Bet on It

Military production could boost the headline number, as defense manufacturers work to replace the munitions and other supplies that have been sent to Ukraine. “There has been an upward tilt into defense data,” said Michael Englund, chief economist for Action Economics. 

The U.S. has sent more than $30 billion in materiel to Ukraine since Russia invaded the country last year, pledging an additional $400 million last month. 

The catch is that defense production tends to be “lumpy,” Englund added. Defense orders come in bursts, so there’s no telling if tomorrow’s report will show a large boost or a modest one.

  1. For a Silver Lining, Look to Consumer Spending

Although there’s no consensus on the likelihood of a recession, consumer spending remains a bright spot for the wider economy. Earlier today, General Motors raised its profit forecasts, citing an overperforming first quarter and high demand for the company’s top-priced vehicles. 

Spending on services is also going strong. Surveys of purchasing managers suggest that, while the manufacturing sector has been contracting since November, the services sector is still growing

That consumer demand could help soften the landing if manufacturing slows. “The broader economy is going to live and die with the consumer,” Stanley said. For the moment, it seems that the patient is still living.

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