US durable goods orders drop 2.8 per cent in February

WASHINGTON – Orders to U.S. factories for long-lasting manufactured goods fell in February with a key category that tracks business investment dropping by the largest amount since December.

Orders for durable goods fell 2.8 per cent in February following a 4.2 per cent increase in January, the Commerce Department said Thursday. Commercial aircraft, a volatile category, fell 27.1 per cent after surging 48.6 per cent in January.

Orders in a category which serves as a proxy for business investment spending fell 1.8 per cent after a 3.1 per cent rise in January. It was the biggest decline in the investment category since a 3.5 per cent drop in December.

Economists saw the big decline in durable goods orders as evidence that the manufacturing sector remains under pressure.

Sal Guatieri, senior economist at BMO Capital Markets, said that the drop in orders for business investment suggested that capital investment would be a drag on overall economic growth in the first quarter. He said if next week’s consumer spending report also comes in weaker than expected then he will have to trim his current 2.3 per cent forecast for first quarter growth.

Manufacturing had a tough year and prospects remain uncertain for 2016. The sector is being hurt by economic weakness in major export markets and a strong dollar.

The rising value of the dollar against other currencies makes U.S. goods less competitive in foreign markets.

The large drop in demand for commercial aircraft reflected weakness in orders at airplane giant Boeing. Demand for military aircraft and parts fell 29.2 per cent in February after a 97 per cent surge in January.

The weakness in demand for nondefense capital goods excluding aircraft, the category used as a proxy for business investment, reflects in part trouble in the energy industry, which has suffered cutbacks and layoffs because of the big plunge in oil prices over the past year.

For February, orders for machinery fell 2.6 per cent while demand for appliances and other electrical equipment dropped 2.8 per cent. Demand for computers rose 1.3 per cent while orders for communication equipment fell 2.3 per cent.