Monthly shipments of nondefense capital goods increased by nearly 5% during the first three months of the year compared to the months before the pandemic-induced economic shutdown.
The increase is a welcome sign of a manufacturing-led economic recovery.
The forward-looking proxy for productivity-enhancing capital goods orders, or orders of nondefense capital goods excluding aircraft, increased 1.9% in March, which was higher than the initial estimate of 1.6%.
The proxy for current orders, or shipments of capital goods orders excluding non-defense aircraft, jumped 1.2%, which is also above the 0.9% initial estimate.
Both provide modest risk of a quicker pace of growth compared to the 6.4% initial estimate of gross domestic product growth for the first quarter by the Bureau of Economic Analysis and the 8.1% Bloomberg consensus growth forecast for the second quarter.
Capital goods shipments bottomed out last April, and yearly growth finally turned positive in December.
The increase is a welcome sign of a manufacturing-led economic recovery and will bolster growth expectations.
While residential investment has been growing quickly, nonresidential investment has been growing more slowly. Business investment had been decelerating since late 2018 and finally turned positive by just over 2.0% in the first quarter relative to the first quarter of last year. (That’s a 9.9% growth rate on the reported annualized basis.)
To the extent that nondefense shipments lead the trend in nonresidential investment, this is a positive sign of an increase in the propensity to invest, which is necessary for the sustainability of the recovery and for extending the breadth of employment opportunities.
In addition, it is one part of a growing number of indicators of a coming renaissance in productivity as firms institutionalize the integration of sophisticated technology used during the pandemic and prepare for the hypercompetitive post-pandemic economy.
In the short term, productivity means little, but in the long term it means everything and translates directly into improved growth, lower inflation and rising living standards.
For more information on how the coronavirus pandemic is affecting midsize businesses, please visit the RSM Coronavirus Resource Center.