The US Census Bureau will release the March durable goods report on Wednesday morning. Economists expect orders for long-lasting manufactured goods to increase by 2.5 percent, or approximately $6.9 billion, over the previous month. So far this year, durable goods orders have been volatile, with a 1.4 percent gain in February following a revised 6.9 percent decline in January. Here are five things to watch for in Wednesday’s report:
1. A rebound, driven by Boeing
Economists expect an increase in orders for Boeing aircraft to propel overall growth for durable goods. The rebound is projected based on data provided by Boeing, which shows 113 new orders in the month of March after grossing just 18 new orders in the first two months of the year. Airlines had been cautious about ordering new Boeing aircraft after a January incident during which the door panel on a 737 Max 9 blew off mid-flight, prompting scrutiny. However, the increase, which is stronger than typical for March orders, signifies that customers have lost some of that trepidation. In addition, new planes – which are more fuel efficient than older models – are necessary for airlines to remain competitive.
2. Excluding transportation, expect a moderate increase
Elsewhere, we’re likely to see a moderate increase of less than a percentage point for durable goods orders excluding transportation, a metric which removes the outsize effect of aircraft orders. This marginal increase would likely conceal a mixed bag of performances across other durable goods components, including expected growth in computers and electronics and volatility in primary metals and machinery. Significant, unexpected growth in durable goods orders excluding transportation would signal a large increase in demand, though economists haven’t seen indications of a surge in demand for long-lasting goods heading into tomorrow’s report.
3. High interest rates continue to weigh on the manufacturing industry
High interest rates continue to drag on manufacturing activity, and economists expect to see that reflected in tomorrow’s report. While the Federal Reserve’s rate hikes have cooled inflation, recent data demonstrates that it remains above the Fed’s target of 2 percent. Many expect that the Fed will wait until later in the year to cut rates, so businesses have held off on making the significant investments that typically show up in the durable goods report.
“[Initially,] we thought you’d see a little bit more of a gradual pick up over the course of the year – even before the Fed starts easing – because businesses are starting to price that [rate decrease] in,” said Shannon Grein, an economist at Wells Fargo. “I think it’s just pushed out now, with the expectation that cuts are coming later.”
4.CHIPS Act subsidies will drive growth in computer and electronics orders
Federal subsidies from the Biden Administration’s CHIPS and Science Act, which is intended to stimulate the domestic production of semiconductors, are expected to contribute an increase in orders of computers and electronic products tomorrow and over the course of the year. Economists point to a recent surge in high-tech factory construction, which suggests a forthcoming surge in the goods they produce — such as computers and electronic products.
“A lot of the CHIPS Act funding is still pouring into the market,” said Michael Englund, chief economist at Action Economics LLC. “You hear reports every three or four weeks of companies getting subsidies to build new plants.”
5. Equipment data will inform GDP outlook
Economists will be watching for the ‘equipment’ section of the report to give clues on the national GDP outlook. Equipment data – which is how economists refer to non-defense capital goods shipments and orders – is almost directly factored into GDP. A large increase or decrease in those metrics can impact expectations for economic growth overall. Recently, the Fed raised its forecasts of 2024 GDP growth from 1.4 percent in December to 2.1 percent in March.
If there was a big surprise in non defense capital goods shipments and orders data, “that could really change the outlook” for GDP projections, said Englund.