Image: Experts See 'Considerable Loss of Momentum' in US Economic Growth
A worker builds an engine for a Ford Focus on the assembly line at the Ford Motor Co.'s Michigan Assembly Plant in Wayne, Michigan. (Photo by Bill Pugliano/Getty Images)

Experts See 'Considerable Loss of Momentum' in US Economic Growth

Wednesday, 24 Apr 2013 09:41 AM

 

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Orders for long-lasting manufactured goods recorded their biggest drop in seven months in March and a gauge of planned business spending rose only modestly, signs of a slowdown in economic activity.

Durable goods orders slumped 5.7 percent as demand fell almost across the board, the Commerce Department said on Wednesday. The drop in orders for these goods, which range from toasters to aircraft, followed a 4.3 percent rise in February.

"We have seen a considerable loss of momentum in the economy and that has been obvious in the round of data we had over the last four weeks or so," said Jacob Oubina, a senior U.S. economist at RBC Capital Markets in New York.

Editor's Note: Economist Warns: 50% Unemployment, 100% Inflation Possible

"Overall, the weak tone of this report underscored the emerging narrative of a considerable slowing in economic growth momentum in March," said Millan Mulraine, senior economist at TD Securities in New York.

From transportation to primary metals and machinery, orders were weak, the latest indication of cooling in a sector that has played a pivotal role in the economy's recovery from the 2007-09 recession.

The drop last month was double what economists had expected and joins other reports ranging from employment to retail sales and manufacturing that have suggested the economy lost momentum at the end of the first quarter.

The government is expected to report on Friday that the economy grew at a 3.0 percent annual rate in the first quarter, according to a Reuters survey, rebounding from a paltry 0.4 percent gain in the final three months of 2012.

Economists, however, are looking for an expansion of only around 1.5 percent or so in the April-June period.

The slowdown, which economists have dubbed the spring swoon, has been largely blamed on belt tightening in Washington as the government tries to slash its bloated budget deficit.

Uncertainty over the impact of deep government spending cuts, known as the sequester, could be making businesses more cautious about rolling out capital projects.

Last month, non-defense capital goods orders excluding aircraft, a closely watched proxy for business spending plans, edged up 0.2 percent. Orders for the so-called core capital goods had dropped 4.8 percent in February and economists had expected a 0.4 percent increase last month.

"There's clearly rising near-term caution in capital spending plans by businesses as fiscal tightening hits and global growth slows," said Ted Wieseman, an economist at Morgan Stanley in New York.

WEAK BUSINESS SPENDING AHEAD

Financial data firm Markit said on Tuesday its preliminary factory purchasing managers' index hit a six-month low in April, mostly because of weak growth in domestic orders. Similarly, factory surveys have also taken a weaker tone this month.

The dour durable goods report, against the backdrop of a tame inflation environment, strengthens the argument for the Federal Reserve to maintain its monetary stimulus.

U.S. Treasury debt prices rose, while stocks on Wall Street mostly fell. The dollar was little changed against a basket of currencies.

Shipments of core capital goods — used to calculate equipment and software spending in the gross domestic product report — rose 0.3 percent in March. However, shipments for February were revised to show a 1.2 percent rise rather than the previously reported 1.9 percent increase.

That suggests growth in business spending in the first quarter could slow from the fourth-quarter's 11.8 percent annual pace. Indeed, some economists lowered their January-March gross domestic product estimates.

JPMorgan cut its first-quarter GDP forecast by two tenths of a percentage point to 2.9 percent, while Barclays said there was a downside risk to its 3.0 percent estimate.

Demand for transportation equipment plunged 15 percent in March, pulled down by sharp declines in orders for both civilian and defense aircraft.

Boeing received orders for only 39 aircraft, down from 179 in February, according to information posted on its website.

There were only gains in orders for motor vehicles and computers and electronic products. Other details of the report were also weak, with unfilled orders falling 0.6 percent after rising 0.7 percent in February.

But the inventory of unsold durable goods edged up just 0.1 percent, a hopeful sign for manufacturers.

Editor's Note: Economist Warns: 50% Unemployment, 100% Inflation Possible

© 2014 Thomson/Reuters. All rights reserved.

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