Durable goods orders for March rose 0.8% following a downward revision in February from -2.8% to -3.1%.

Motor vehicle orders fell a steep 3.0%.

Shipments declined 0.5% but core capital goods shipments rose 0.3%. Core capital goods revisions were hugely negative.

The Bloomberg Econoday consensus was 1.6%, double the reported number.

Highlights

The factory sector posted a respectable March with orders for durable goods up 0.8 percent which follows a revised downswing of 3.1 percent in February and a very solid 4.3 percent gain in January. March reflects a big gain for defense goods which helped offset a downward swing for commercial aircraft. A negative in the report is a 3.0 percent decline for motor vehicle orders reflecting weakness at the retail level.

Data on core capital goods orders are uninspiring, unchanged for new orders in March to extend a soft trend. Shipments for this series, which are inputs into GDP, inched 0.3 percent higher but follow outright declines in the first two months of the quarter.

Shipments in March fell 0.5 percent and unfilled orders fell 0.1 percent. Manufacturers are carefully watching inventories for unwanted builds keeping inventories flat in the month and the inventory-to-shipments ratio unchanged at 1.66.

The benefits of the lower dollar and higher energy prices have yet to give the factory sector much lift, at least they didn’t in March though there are hints in anecdotal reports of emerging strength in April.

Recent History

The dollar may be depreciating and oil prices may be stabilizing, but they have done very little – at least so far – to hold up durable goods orders which fell a steep 2.8 percent in February including a very weak 1.0 percent decline when excluding transportation equipment (and related month-to-month volatility in aircraft orders). Forecasters do see a bounce for March, at plus 1.6 percent for the main headline and at plus 0.5 percent for ex-transportation orders. Readings for core capital goods orders, including both orders and shipments, proved very weak in February and a lack of rebound in March would point to further erosion in business investment and continued weakness in productivity growth. Still, strength tied to the decline in the dollar, which will help exports, and to higher oil prices, which will boost energy equipment, appear certain to give a lift to the factory sector, sooner than later.

Mixed Report, Weaker Than It Looks

Bloomberg called the report “respectable”.

This was a mixed report but details show the reports was much weaker than it looks on the surface.

Strength led by defense spending is hardly encouraging. Autos down 3% does not bode well for consumer spending. And what about core capital goods.

“Uninspiring”

Core capital goods shipments rose 0.3%. However, core capital goods orders were flat after a huge downward revision in February from -1.8% to -2.7%.

Year-to-date core capital goods are down 2.5%. Excluding transportation, orders are down 1.4%.

In recent history, Bloomberg correctly noted “Readings for core capital goods orders, including both orders and shipments, proved very weak in February and a lack of rebound in March would point to further erosion in business investment and continued weakness in productivity growth.”

In today’s report Bloomberg glossed over the huge downward revision simply as “uninspiring”.

This report was much weaker than it appears at first glance based on the “respectable” headline number.