Demand for long-lasting factory goods fell in April, hinting at potential speed bumps for the manufacturing sector and broader economic growth.
Orders for durable goods -- products designed to last at least three years, such as factory equipment and computers -- decreased 0.7% from the prior month to a seasonally adjusted $231.17 billion in April, the U.S. Commerce Department said Friday.
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Business capital spending rose sharply in the first quarter, supporting an otherwise lackluster period of economic growth, according to separate Commerce Department data. Steady job creation, a stable dollar, a resurgent energy sector and stronger demand from overseas have all lent support to the sector.
Friday's report suggests businesses won't continue at that pace. A closely watched proxy for business spending on new equipment, orders for nondefense capital goods excluding aircraft, was flat in April, the second consecutive month with no change.
"The bottom line is that investment in business equipment is unlikely to make another large contribution to growth in the second quarter," Michael Pearce, chief U.S. economist at Capital Economics, said in a note to clients.
Elsewhere, the April durable goods report was mixed.
New orders for civilian aircraft, a category that swings wildly from month to month, dragged down the headline figure. Other sectors also retrenched, including primary and fabricated metals, machinery and electrical equipment.
"That is hardly a sign that firms are confident enough about future growth to start investing in it," Joel Naroff, chief economist at Naroff Economic Advisors, said in a note to clients.
In one sign companies are investing, new orders for computers jumped 5% from a month earlier.
Motor vehicle and parts orders climbed 0.3% following decreases the prior two months. Automotive production had been a driver of growth for much of the economic recovery, but demand in the sector appears to be easing in recent months after hitting record levels in 2015 and 2016.
Data on durable goods can be volatile from month to month, but broader trends suggest the manufacturing sector had picked up early in the year after weak stretches through much of 2015 and 2016.
Total durable-goods orders were up 2.2% in the first four months of 2017 compared with the same period a year earlier. Orders for nondefense capital goods excluding aircraft have advanced only 1.3% in the same span.
"Surveys suggest that businesses are ecstatic about the change in tone in Washington and are prepared to unleash a flurry of pent-up investment, but they are holding off until there is more clarity on corporate tax reform and other elements of the new administration's fiscal agenda," said Stephen Stanley, chief economist at Amherst Pierpont Securities.
Other manufacturing gauges have been broadly positive recently.
The Federal Reserve's April industrial production index showed manufacturing output posted its strongest gain since early in 2014, pushing the Fed's manufacturing index to a new postrecession high.
Separately, the Institute for Supply Management earlier this month said its closely watched index of U.S. manufacturing activity fell in April but still indicated the sector was expanding. ISM manufacturing readings for each month this year have been higher than any month in 2015 or 2016.
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(END) Dow Jones Newswires
May 26, 2017 10:33 ET (14:33 GMT)