New orders for durable goods had been plunging in the months of January and February, signaling that the market for long-lasting consumer goods is contracting as the Federal Reserve continues to raise interest rate hikes and the banking crisis deepens. The new durable goods report set to be released by the Commerce Department on Wednesday might showcase a slight increase in new orders. According to Bloomberg Terminal, economists expect to see new orders jump to 0.7%.
- Small Rebound in New Orders
Economists forecast that new orders for durable goods will rise, but it will be thanks to a bounce in Boeing passenger aircraft orders that were not reflected in the previous reports. Transportation orders tend to be a volatile category that always influences the headline number for new orders, and it is anticipated that the increase in orders for durable goods exempting transportation isn’t likely to contribute much to the expected 0.7% hike.
Therefore, while we can expect a small rebound, economists are afraid that it won’t be relevant across the board as new orders for other durable goods such as car parts or kitchen appliances might remain virtually unchanged.
2. Gains in shipment data
Though the producer sentiment numbers have fallen below 50 and suggest a pessimistic outlook for manufacturing production, there has been a consistently ongoing growth in the factory sector. Until now, buying equipment has been tricky for manufacturers due to high prices and supply chain problems, but as the supply chains begin to ease up, it will be easier for factories to buy equipment, fulfill orders, and produce exports– thereby leading to an increase in shipment data.
3. Core capital goods orders and interest rate hikes
Orders for core capital goods are a sign for business investment in the durable goods sector. Core capital goods orders were declining for four out of the last five months and in the new report, we expected to show minimal or negligible growth which can be traced back to the Federal Reserve’s attempts to control inflation by increasing borrowing costs.
“We don’t expect much from the capital goods data this time around,” said Stephen Stanley, chief economist at Santander U.S. Capital Markets.
4. Strength in the automotive sector
Until now, the performance of the automobile sector has seen highs and lows in the past couple months. In fact, new orders for motor vehicles, and parts fell by 0.5% in February, a disappointing number given the 0.3 percentage point rise in January. However, now economists expect to see a rising strength in the automotive sector despite the interest hikes and credit crunch brought on by the banking crisis. Even General Motors increased its profit forecasts recently, indicating that there has been a growth in demand and high performance in the first quarter of 2023.
“We expect the automobile sector to continue growing and provide some flooring for the durable goods,” Stephen Stanley said.
5. The role of the banking crisis
Economists anticipate that though Manufacturing might be slowing and the economy heading towards a softer landing, it’s still mostly because of the hike in interest rates by the Federal Reserve. The banking crisis’ impact is still undetermined. However, inflation remains untamed as well.
“The Fed’s work is still not over,” said Micheal Englund, chief economist for Action Economics.