Core Capital-Goods Orders Post A Strong Gain in April

New orders for durable goods fell in April, decreasing 1.3 percent, following a run of 11 consecutive gains. Total durable-goods orders are up 32.2 percent from a year ago. The April drop puts the level of total durable-goods orders at $246.2 billion (see top of first chart).

New orders for nondefense capital goods excluding aircraft or core capital goods, a proxy for business equipment investment, rose 2.3 percent in April after gaining 1.6 percent in March, putting the level at $75.0 billion, a record high. This important category had been in the $65 to $70 billion range for several periods over the past 15 years before dropping to $59.9 billion in April 2020. The $59.9 billion pace was the slowest since December 2016.  Core capital-goods orders have been above $70 billion for six consecutive months (see bottom of first chart).

Five of the seven major categories of durable goods shown in the report had gains in the latest month. Among the individual categories, primary metals rose 3.0 percent, fabricated metal products gained 0.9 percent, machinery orders added 1.4 percent, computers and electronic products rose 0.4 percent, and the catch-all “other durables” category was up 0.5 percent. The two decliners were electrical equipment and appliances, down 0.9 percent, and transportation equipment, off 6.7 percent (see second chart).  Within the transportation equipment category, motor vehicles and parts sank 6.2 percent while nondefense aircraft jumped 17.4 percent and defense aircraft dropped 8.5 percent.

The report on durable-goods orders highlights the strength of the business sector. Capital spending reflects improving prospects for growth and rising confidence among business leaders. However, logistical and labor issues continue to hamper some areas of production, creating shortages of input material and putting upward pressure on prices. These pressures are likely to be temporary as issues are worked out and full production is resumed.