US Core Capital Goods Orders Jump by Most Since 2020

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(Bloomberg) — US orders for business equipment increased in March by the most since mid-2020, extending a yearlong stretch of solid capital investment fueled by spending on artificial intelligence. 

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The value of core capital goods orders, a proxy for investment in equipment that excludes aircraft and military hardware, jumped 3.3% after an upwardly revised 1.6% advance in February, Commerce Department figures showed Wednesday. 

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Bookings for all durable goods — items meant to last at least three years and including orders for commercial aircraft and military equipment — rose 0.8% in a largely broad advance.

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Economists expect business investment will remain solid this year as companies keep spending on artificial intelligence and take advantage of more favorable tax provisions. At the same time, it’s unclear how guarded firms will be if the Iran war isn’t resolved soon. The conflict has sharply driven up prices of oil and some other commodities.

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“The stunning degree of strength during a month when firms would have had valid reason to be cautious attests to the substantial energy in business investment that was bottled up last year due to policy-related uncertainty but is being unleashed over the past several months,” Stephen Stanley, chief US economist at Santander US Capital Markets LLC, said in a note.

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The durables report showed increased bookings for communications equipment, electrical hardware and motor vehicles and parts. Orders for military aircraft also advanced sharply, while bookings for machinery and metals rose.

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Non-defense capital goods shipments including aircraft, which feed directly into the equipment investment portion of the gross domestic product report, rose 0.5% in March. Rather than orders that can be canceled, the government uses data on shipments as an input to GDP. 

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The durables report showed core capital goods shipments, a less volatile metric that excludes planes and military hardware, rose 1.2% after an upwardly revised 1.3% advance a month earlier.

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Economists prefer the core equipment shipments and orders figures because they offer a clearer picture of the trend in underlying business investment and the impact on the economy.

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Trade Deficit

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Separate data out Wednesday showed the US merchandise-trade deficit widened in March for second month. The shortfall in goods trade grew 5.3% from the prior month to $87.9 billion — in line with the Bloomberg survey median. A gain in imports exceeded a rise in exports.

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Economists will use both the durable goods and trade reports to fine-tune their first-quarter growth projections. On Thursday, the Bureau of Economic Analysis will issue its first estimate of GDP for the January-March period.