April 26, 2018 / 12:44 PM / 10 months ago

U.S. core capital goods orders, shipments fall in March

WASHINGTON, (Reuters) - New orders for key U.S.-made capital goods unexpectedly fell in March, weighed down by the biggest drop in demand for machinery in nearly two years, and a decline in shipments suggested business spending on equipment slowed in the first quarter.

FILE PHOTO: Caterpillar machines are seen at a construction site in New York City, U.S., October 17, 2016. REUTERS/Brendan McDermid

The Commerce Department said on Thursday that orders for non-defense capital goods excluding aircraft, a closely watched proxy for business spending plans, slipped 0.1 percent last month. Data for February was revised to show orders for these so-called core capital goods increasing 0.9 percent instead of the previously reported 1.4 percent jump.

Economists polled by Reuters had forecast core capital goods orders rising 0.5 percent last month. Core capital goods orders increased 6.5 percent on a year-on-year basis.

Shipments of core capital goods declined 0.7 percent last month after a downwardly revised 1.0 percent increase in February. Core capital goods shipments are used to calculate equipment spending in the government’s gross domestic product measurement.

They were previously reported to have surged 1.4 percent in February. Business spending on equipment likely slowed in the first quarter after double-digit growth in the second half of 2017.

But against the backdrop of a sharply lower corporate income tax rate, economists expect a marginal impact on business spending on equipment from rising interest rates and more expensive raw materials, which could squeeze profit margins for manufacturers.

The Trump administration slashed the corporate tax rate to 21 percent from 35 percent effective in January.

Caterpillar CAT.N on Tuesday reported strong financial results for its first quarter and upgraded its profit outlook for the full year. The world’s largest heavy equipment maker, however, cautioned it would not have the same pricing power to pass on increased costs of materials.

Last month, orders for machinery fell 1.7 percent, the biggest drop since April 2016, after gaining 0.3 percent in February. There were, however, increases in orders of primary metals, computers and electronic products, fabricated metals and electrical equipment, appliances and components.

Overall orders for durable goods, items ranging from toasters to aircraft that are meant to last three years or more, increased 2.6 percent in March as demand for transportation equipment rose 7.6 percent. That followed a 3.5 percent surge in durable goods orders in February.

Boeing reported on its website that it received 197 aircraft orders in March compared to only 30 in February.

Orders for motor vehicles and parts edged up 0.1 percent last month after jumping 2.0 percent in February.

Reporting by Lucia Mutikani Editing by Paul Simao

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