A key indicator of U.S. business investment fell in February, indicating that business owners have been hesitant to make capital investments in the midst of on-again, off-again tariffs and economic uncertainty.
Core capital goods orders, the measure of monthly capital goods orders excluding spending on defense and aircraft equipment, dropped 0.3% in February, the Commerce Department’s Census Bureau said Wednesday, following an upwardly revised increase of 0.9% in January. The figure is a key economic indicator that factors into Gross Domestic Product.
President Trump, who has imposed additional tariffs on China as well as steel and aluminium, imported cars and car parts and threatened even more levies, insists that tariffs will spur domestic manufacturing, but experts warn that his aggressive and sporadic levies are more likely to hurt U.S. businesses and manufacturers than help them. February’s slight decrease in core capital goods orders suggests that domestic businesses are spending tepidly as they wait to see how tariffs shake out.
“Companies are being very cautious,” said Christopher Low, chief economist at FNH Financial. “Until the tariff mess settles down a little bit, companies are slow about capital spending and investing. We’re just not seeing the durable good spending that we would otherwise.”
Overall, durable goods orders outperformed expectations in February, increasing 0.9% when they were expected to fall by 1%. Transportation-related durable goods orders rose 1.5% from January to February, as orders for motor vehicle parts increased by 4% — potentially reflecting an attempt by manufacturers to hedge against incoming tariffs — and defense aircraft spending surged by 9.3%. Meanwhile, non-defense aircraft spending fell by 5%. Aircraft goods orders tend to be extremely volatile month to month, which is why they are excluded from core capital goods.
Economists generally see a rise in durable goods orders as a signal of a strong economy, suggesting confidence and expectations of long-term growth among company leaders. Some economists say the rise in total durable goods orders last month may have signaled that.
“This was a good report,” said Stan Shipley, managing director at Evercore ISI. “Even though there’s heightened uncertainty in the financial markets and among the consumer sector, within the manufacturing sector there’s been signs that it is on an upturn.”
The decline in core capital goods orders tells a different story, suggesting that business owners may be dialing down their long-term investments until they have a better grasp on how tariffs will affect their costs. Such a trend would be in line with consumer confidence and spending, which have cooled in the last months.
“ This is a typical reaction to uncertainty,” Low said. “Once people have a better sense of the environment they’re trying to operate in, it’ll be easier. Until that happens, I think we should expect things to continue to slow.”
In early February, before he understood how tariffs might affect his industry, Alex Dragovich spent around $20,000 on a new hay accumulator and a vintage feed grinder for his organic farm in northeastern Ohio, where he farms grains and chicken eggs.
At the time, the 76-year-old head of Mud Run Farm Organics didn’t know all the details of Trump’s tariff threats. He learned about the levies, and how they could affect farmers like him, the following week at an annual conference for Ohio’s agriculture professionals.
If Dragovich were considering making those equipment purchases today instead of in early February, he said that he wouldn’t feel comfortable pulling the $20,000 trigger, because he’s worried about the costs of his inputs going up. The oats that go into his chicken feed, for example, often come from Canada, which supplies the U.S. with over $300 million in oats a year.
“I wouldn’t buy it today,” Dragovich said of his recent equipment investments, “because of the uncertainty of a lot of markets.”