Demand for long-lasting factory goods improved modestly in March, a sign that the manufacturing sector is healing only slowly as business investment remains restrained.
Orders for durable goods -- products designed to last at least three years, such as trucks and computers -- increased 0.7% from the prior month, the U.S. Commerce Department said Thursday. It was the third straight month orders increased, but March's gain was the weakest and below economists' expectation for a 1.3% rise.
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The manufacturing sector has found firmer footing since the middle part of last year. But businesses are now only modestly increasing capital investments, a limiting factor for worker productivity and broader economic growth.
Economists project the economy advanced at just a 1% annual pace in the first quarter, about half as strong as the average annual growth rate for the nearly eight-year-long expansion. The Commerce Department will release its initial report on first-quarter gross domestic product Friday.
"The business investment situation looks better today than it has for quite some time," said Stephen Stanley, chief economist at Amherst Pierpont Securities. "But the near-term outlook is still restrained, as many firms are waiting to see what happens with corporate tax reform, regulatory relief" and other policies.
Thursday's report showed a closely watched proxy for business spending on new equipment, orders for nondefense capital goods excluding aircraft, rose 0.2% in March, continuing a trend of small increases in the category.
Orders for nondefense capital goods excluding aircraft rose 2.1% over the past three months compared with the first quarter of 2016. Total durable-goods orders were up 3.4% in the first three months of 2017 compared with the same period a year earlier.
An improving global economy, a stabilized energy sector and a strong housing market generally supports demand for U.S. manufactured goods.
But challenges persist. A stronger U.S. dollar makes American-made goods relatively more expensive for overseas buyers. And U.S. consumer demand showed signs of easing this year.
Durable-goods orders grew more slowly in March in part because orders for motor vehicles and parts declined for the second straight month, falling 0.8% from February. 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.
Meanwhile, orders for civilian aircraft and parts, a volatile category, rose 7% from the prior month. In February, civilian-aircraft orders rose 57.2%. Excluding transportation, orders fell 0.2% in March, the first decline in six months for the category.
Defense capital goods orders rose 12.2% during March. Excluding defense, overall orders rose 0.1%.
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(END) Dow Jones Newswires
April 27, 2017 16:16 ET (20:16 GMT)