Durable goods orders in February fell for the second month in a row, driven mostly by declines in orders for automobiles, aircraft and defense.
Total orders dropped by 1% while autos, aircraft and defense orders were down by 0.9%, 6.6% and 7.4%, respectively, according to Commerce Department data released on Friday.
Stripping away those volatile components, core capital goods, which better indicate the underlying trend of future private investment, inched up by 0.2%, the second increase in a row.
That brought the three-month annualized moving average to positive territory at 0.3% for the first time in three months.
The increase in core orders was a positive sign as business investment had been weakening significantly after a robust period from 2021 to early last year.
Shipments of core capital goods, which indicate the current level of investment in equipment and machinery, was unchanged in February after being revised down to only a 0.9% increase in January.
While there are increasing predictions of a hard landing in the economy, consumers will not stop spending until they are unable to spend, which is often after a downturn has taken place and unemployment rises.
Given our forecast of a potential recession in the second half of the year, we should expect that the appetite for investment should remain before signaling a clear pullback as the full impact of restrictive financial conditions hits the manufacturing sector.
At the same time, the defense spending boost for this fiscal year, approved by the government in December, should help keep overall nonresidential investment from spiraling down.
Together with how resilient both business and consumer balance sheets have been, there is still a high chance that the next recession will be relatively mild and brief.
Underneath the top-line number, inventories inched up by 0.2% in the month, while unfilled orders dropped for the first time by 0.1% in more than two years.
