Durable goods orders declined for the first time in five months in February because of geopolitical uncertainties and the anticipation of the Federal Reserve’s first interest rate hike since 2018.
With multiple rate increases expected this year, we expect investment spending for the entire year to decline further, especially if inflation does not stay under control.
The headline number dropped by 2.2% on the month, while the core orders—excluding transportation and defense—posted an even bigger drop at 2.7%, according to data from the Commerce Department on Thursday.
What is more notable is that February’s spending on core capital goods—which are part of durable goods and feed into future calculations of gross domestic product—declined for the first time in a year.
Shipments of both durable goods and core durable goods stayed unchanged in February, while shipments of core capital goods—which feed into this quarter’s GDP estimate—slowed down significantly on the month, rising by 0.5% from 2.1% in January.
Shortages of chips continued to hamper spending on transportation goods. That category was the main reason for the decline in spending on capital goods.
The data undershot earlier market expectations by a sizable margin, implying downside risks to economic growth in both the current quarter and the next quarter.
The declines, however, helped to lower the number of unfilled orders to only 0.4% on the month, from 0.9% in January. The inventory-to-shipment ratio eased slightly to 1.77 from 1.76 previously.