Long-lasting goods orders in February showed the first decrease in nine months, but economists say to take this report with a grain of salt.
Orders for manufactured durable goods fell 1.1% from January, a modest loss of $2.9 billion, the Census Bureau reported on Wednesday. Transportation led the decrease, with a 1.6% loss.
The decreased orders in overall goods – things like cars, home appliances and toys – aren’t due to the ongoing COVID-19 pandemic, but rather the winter storms that covered the South and Midwest throughout February. The winter freeze delayed orders and shipments. Even so, with increases in big sectors like transportation and consumer spending, economists suggest we will see an increase in next month’s report.
“We all see weather disruptions in the data in February,” said Christopher Low, chief economist at FHN Financial. “The state of Texas, for example, was completely unprepared, even to keep the power on when temperatures dropped below zero. So, that was definitely a factor.”
Despite the decrease, economists aren’t looking at this report as a negative change in the economy. There are still production issues for major sectors in durable goods such as motor vehicles, which have steadily decreased due to semiconductor production being stalled.
“I think it’s kind of one of those months that you throw out,” said Robert Stein, deputy chief economist at First Trust Portfolios LP. “Every big major data set, even employment, every once in a while you get a piece of data where it really does not tell you anything about the trend at all.”
Next month’s report may be more indicative after President Biden’s $1.9 trillion American Rescue Plan passed, giving extra government assistance to Americans.
Economists expect orders to rebound quickly with many more American’s getting a $1,400 stimulus and extended unemployment benefits, suggesting an increase in consumer spending. Things like computers, bicycles, home appliances and travel should start to show an increase fairly quickly.
Consumer spending has looked promising in the months prior and as past reports show, inventories have been low, not being able to keep up with consumer demand.
Tess Donaldson, 20, is a part-time employee at a local bike shop in Utah. She saw how quickly bikes and bike parts were bought after the first round of stimulus checks. Donaldson had been wanting to buy a bike for a while and was able to for $2,000 even though it was worth much more.
“It was cheaper because of a deal we worked out with a family friend,” she said, “and it was fairly easy because I beat the whole rest of the world on buying out pretty much all the bikes being manufactured.”
Bikes are one of the many consumer durable goods that have been backlogged due to production not being at capacity. Now, it is difficult to get a nice bike because of the high demand and inability to get bike parts. Even so, government assistance has lent a helping hand in consumer spending.
“[Consumer spending] is one area that has been very comforting,” said Jennifer Lee, a senior economist at BMO Capital Markets. “Even though jobs have been cut, you know, the government has been helping support incomes still. There’s a lot of savings in there, with a lot of consumers putting money away for a rainy day.”
Donaldson is no exception to this and plans on saving the next stimulus check in order to use it for future traveling.
“Hopefully at the end of summer, if countries open up and travel becomes safer, I can spend it on going to Tanzania with a volunteer group my mom is taking, and climb Mt. Kilimanjaro,” she said.
The upcoming demand from consumers will further drive business investments. Airplanes, for example, are a durable good that is projected to have an increase in orders as consumers begin spending more money on traveling, one of the hardest-hit sectors during the pandemic.
“An increase in traveling and even the anticipation of an increase in traveling later this year and next year, will increase the numbers of orders going to airline companies in particular, Boeing, resulting in better numbers for the transportation sector going forward,” Stein said.
Stein said there is a new trend in transportation orders dealing with aircraft after seeing a 0.6% increase in transportation equipment on the latest report. Consumer spending will also show a rise in the transportation sector, with government assistance going towards traveling once again.
“Durable goods is one of the few categories in the economy that have not only fully recovered, but are actually much stronger than they were before the pandemic,” Low said.