Watch For A 7% US Growth Rate Despite Durables’ Set-Back

US durable goods orders growth slowed sharply in March as semi-conductor chip shortages constrained key manufacturing sectors. Nonetheless, the stimulus-fuelled consumer sector provides a strong underpinning and both residential and equipment investment will contribute positively to what looks likely to be a very strong first-quarter GDP figure.

The Tesla car company appears to be coping with global chip shortages better than most

Durables disappoint as chip shortage bites

March US durable goods orders are weaker than expected, rising 0.5%MoM versus the consensus forecast of 2.3%. There are upward revisions to the history, but it still classifies as a downside miss.

The weakness is concentrated in the transport section (-1.7%) with the semi-conductor chip shortage leading to well-publicized production cut-backs at automakers. This is resulting in fewer orders for other vehicle components. The electrical equipment component (-1.5%) is suffering for the same reason.

They will recover as the chip story improves along with the fact the ISM reports a net 40% of respondents currently saying that their customers’ inventories are "too low". This also means we should expect much stronger order numbers through 2Q into 3Q.

Low customer inventory levels will continue to support strong manufacturing orders

(Click on image to enlarge)

Source: Macrobond, ING

But low customer inventory levels point to a rebound

Outside of transportation and electrical equipment, the orders numbers already look very strong. As the chart below shows, the non-defense capital goods orders excluding aircraft – a “core” measure that is considered a good proxy for capital expenditure by US businesses – point to a strong first-quarter investment reading.

Strong orders point to big investment contribution to 1Q GDP growth

(Click on image to enlarge)

Source: Macrobond, ING

1Q GDP will be strong, 2Q even better

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Disclaimer: This publication has been prepared by the Economic and Financial Analysis Division of ING Bank N.V. (“ING”) solely for information purposes without regard to any ...

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