Wrapup 2: U.S. business spending on equipment ends first quarter on strong note
26/04/2021 14:28
(Adds details, analyst comments, updates markets)
* Core capital goods orders increase 0.9%
* Core capital good shipments rebound 1.3%
* Durable goods orders rise 0.5%
By Lucia Mutikani
WASHINGTON, April 26 (Reuters) - New orders for key
U.S.-made capital goods rose solidly in March and shipments
surged, cementing expectations that economic growth accelerated
in the first quarter as massive government aid and improving
public health boosted demand.
The strength in business spending reported by the Commerce
Department on Monday joined upbeat data on retail sales and the
labor market in setting up the economy for what analysts expect
will be its best performance this year in nearly four decades.
Economists saw little impact on investment from President
Joe Biden's push for a sweeping overhaul of the U.S. tax system
to make rich people and big companies pay more and help foot the
bill for the White House's ambitious economic agenda, including
upgrading the nation's crumbling infrastructure.
Details of the tax proposal could be released before Biden's
address to the U.S. Congress on Wednesday. Economists said there
was no evidence that former President Donald Trump's deep
corporate tax cuts boosted business investment.
"It is hard to fathom how partially rolling back the Trump
cuts to pay for the infrastructure plan will meaningfully impede
business investment," said Ryan Sweet, a senior economist at
Moody's Analytics in West Chester, Pennsylvania. "There is
little relationship between the effective corporate tax rate and
changes in real business equipment spending. Most U.S.
corporations have no trouble getting cheap capital and they pay
among the lowest effective tax rates in the world."
Orders for non-defense capital goods excluding aircraft, a
closely watched proxy for business spending plans, increased
0.9% last month. These so-called core capital goods orders fell
0.8% in February after bitterly cold temperatures gripped large
parts of the country.
Though last month's increase was below the 1.5% jump that
had been anticipated by economists in a Reuters poll, core
capital goods orders surged 10.4% year-on-year in March.
Reports this month showed retail sales raced to a record
high in March while the economy created the most jobs in seven
months. Factory activity measures are at multi-year highs,
indicating continued strength in manufacturing, which accounts
for 11.9% of the U.S. economy.
The Biden administration's massive $1.9 trillion COVID-19
pandemic rescue package and increased vaccinations against the
virus have allowed for broader economic re-engagement,
unleashing pent-up demand, for both goods and services. Biden
has also proposed a $2.3 trillion jobs and infrastructure plan.
Stocks on Wall Street rose. The dollar was steady against a
basket of currencies. U.S. Treasury prices were higher.
STRONG GROWTH
In March, core capital goods orders were boosted by
machinery, primary and fabricated metal products, as well as
computers and electronic products. But orders for electrical
equipment, appliances and components dropped 1.5%.
Shipments of core capital goods rebounded 1.3%, recouping
February's 1.1% drop. Core capital goods shipments are used to
calculate equipment spending in the government's gross domestic
product measurement.
Based on the latest data, economists are forecasting strong
business spending on equipment in the first quarter.
"The response of capital spending to the COVID pandemic,
with both orders and shipments of core capital goods at a record
high, is encouraging for the outlook for 2021," said Conrad
DeQuadros, senior economic advisor at Brean Capital in New York.
With households sitting on at least $2 trillion in excess
savings, demand booming and inventories low, businesses are
likely to continue investing in equipment to boost production,
though raw material and input shortages could be an issue.
"There's still a gap between orders and shipments as
producers ramp up capacity and adjust to increasing demand,"
said Will Compernolle, a senior economist at FHN Financial in
New York. "The increase in the orders backlog is especially bad
in core capital goods, suggesting accelerating capital
spending."
The government's snapshot of first-quarter GDP on Thursday
will likely show the economy grew at a 6.1% annualized rate,
according to a Reuters survey of economists. That would be the a
second fastest growth pace since the third quarter of 2003 and
would follow a 4.3% rate of expansion in the final three months
of 2020.
The economy grew at a record 33.4% pace in the third quarter
of 2020 after contracting at a historic 31.4% rate in the
April-June period. Growth is expected to top 7.0% this year,
which would be the fastest since 1984. It would follow a 3.5%
contraction last year, the worst performance in 74 years.
Orders for durable goods, items ranging from toasters to
aircraft that are meant to last three years or more, rose 0.5%
in March after falling 0.9% February. They were restrained by a
1.7% decline in orders for transportation equipment, which
followed a 2.0% drop in February.
Orders for civilian aircraft tumbled 46.9%. That was despite
Boeing BA.N reporting on its website that it had received 196
aircraft orders last month compared to 82 in February. Last
month's orders included 185 737 MAX jets. The U.S. government
late last year lifted a 20-month grounding of the aircraft that
was put in place after crashes in Indonesia and Ethiopia.
Orders for motor vehicles and parts shot up 5.5% in March
after plunging 9.1% in February. Motor vehicle production has
been hit by a global semiconductor chip shortage. Output of
computers and electronic products also has been impacted.
Unfilled durable goods orders rose in March for the third
straight month.
(Reporting by Lucia Mutikani; Editing by Chizu Nomiyama)
((Lucia.Mutikani@thomsonreuters.com; 1 202 898 8315; Reuters
Messaging: lucia.mutikani.thomsonreuters.com@reuters.net))