New orders for durable goods likely slowed in March, as a drop off in aircraft purchases was expected to drive down the key measure of manufacturing activity.
Economists surveyed by Bloomberg expected orders for durable goods to fall 3 percent on average, a sharp departure from February, when orders spiked 5.7 percent and reached the highest mark since December 2007.
But the February spike was driven almost entirely by a sharp increase in orders for civilian aircrafts, with Boeing recording 179 plane orders that month.
In March, the massive aircraft maker sold 39 planes, and economists said business spending, while expanding slightly, was still fairly tepid amidst uncertainty in the global economy.
“There’s not the kind of risk taking that drives growth,” said Cliff Waldman, a senior economist at the Manufactures Alliance for Productivity and Innovation. “It’s what I call defensive spending.”
He added: “If the old adage holds that uncertainty is the enemy of investment then we’ll continue to see less than stellar spending.”
The durable goods report, due Wednesday, is notoriously volatile, with aircraft orders and defense spending sometimes shifting drastically from one month to the next. Still, economists are closely watching orders for “nondefense capital goods, excluding aircraft,” which is considered an indication of business spending. Orders in this category were down in February, after a healthy increase the month before.
“We haven’t seen a lot of conviction in the business sector,” said Tim Quinlan, an economist at Wells Fargo. “This has been a real saw tooth pattern. Do I think we’re going to break away from that? No. Over time business spending is gradually adding to GDP but it has not been the real locomotive of economic growth.”
Earlier this week, the U.S. manufacturing purchasing managers’ index, or PMI, showed expansion in the sector, but at a slower rate than the previous month. And new orders dropped off sharply from March levels.
Quinlan pointed out that orders for durable goods are still off nearly 5 percent from December 2007. While GDP recovered to prerecession levels in the first quarter of 2012, the manufacturing sector has lagged behind.
Economists said there are signs companies are replacing essential equipment, but holding off on more aggressive purchases as they watch the recession in Europe and the economic slowdown in China. American companies believe that the “flashing red lights” in the economy have subsided, but that there is still too much weakness in the global market to warrant a major increase in spending, Waldman said.
“There’s a sense that at least somebody is driving the car and that it’s not going to go off the cliff,” Waldman said. “That’s a good improvement. That being said, we’re still dealing with a world of weakness, fiscal challenges and high unemployment.”
