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Durable goods orders jumped 4.0 percent in March, which should be a sign that the sector was growing strongly and rebounding from recent softness. Instead, strong aircraft and motor vehicle sales in the month masked broader weaknesses behind the surface. Excluding transportation equipment orders, durable goods sales dropped 0.2 percent for the month and have edged lower across the past six months. Durable goods shipments were somewhat more encouraging on a year-over-year basis, up 3.7 percent, but they have been essentially flat since September.
This finding mirrors weaknesses in other data points, with manufacturing activity easing over the past few months due to a number of significant headwinds in the economy. These include a stronger U.S. dollar, weaknesses abroad, persistent logistical challenges from the West Coast ports slowdown and weather. The Chicago Federal Reserve Bank’s National Activity Index was lower for the third straight month in March largely on these hurdles, particularly from production-related indicators. Similarly, the Kansas City Federal Reserve Bank observed falling activity levels across-the-board, with exports declining for the fourth consecutive month. The reduction in crude oil prices dampened demand and production in the district, hurting producers.
If there is any silver lining, it is that manufacturers in the United States remain positive in their outlook. In fact, 45 percent of respondents to the Kansas City Fed Manufacturing Survey expect orders to increase over the next six months, with 38 percent anticipating greater production. Exports were the one main area where respondents continue to expect challenges. Likewise, the Markit Flash U.S. Manufacturing PMI found that export orders turned negative in April as a stronger dollar and sluggish growth in international markets weakened sales. Nonetheless, even with the above-mentioned headwinds, the Markit analysis continued to indicate decent growth in new orders, output and hiring in April.
Overseas, preliminary manufacturing data for China and Europe were both weaker in April. Chinese manufacturers reported declines for the fourth time in the past five months. The contraction in China stemmed largely from reduced domestic demand, with its economy continuing to decelerate. Production expanded slightly in April, albeit at a slower pace. Meanwhile, manufacturing activity in the Eurozone has improved today from where it was a few months ago; yet, new orders, output and exports were a bit softer in April than in March. The good news was that the data points reflect somewhat modest growth, and we have seen some rebounds in several recent indicators, including industrial production and economic sentiment. Still, even with better numbers, growth in Europe will be slow, which is why the European Central Bank has moved so aggressively toward stimulative measures.
Meanwhile, we received mixed news on the housing front last week. Existing home sales rebounded in March after slowing in recent months, especially in the Midwest and Northeast due to poor weather conditions. This was an encouraging development. However, it remains a seller’s market. Supplies of existing home sales remain low, helping to push median prices higher. In contrast, new single-family home sales declined in March to their slowest pace in four months. Looking at a longer time horizon, new home sales have jumped significantly, up 19.4 percent, but the Midwest and Northeast have yet to fully recover from recent slowness in their year-over-year activity levels. In addition, unlike the existing home market, inventories of new homes for sale have increased in March, which should benefit buyers.
This week, we will be looking for improved manufacturing activity in April after easing in recent months, with the Institute for Supply Management releasing new Purchasing Managers’ Index data on Friday. In addition, the Dallas and Richmond Federal Reserve Banks will report on activity in their regions on Monday and Tuesday, respectively. The economic highlight will come on Wednesday, with the release of real GDP data for the first quarter. My estimate is for 1.5 percent growth. Other data releases next week include the latest figures on construction spending, consumer confidence, employment costs and personal income and spending.
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