Before a sweeping round of tariffs were announced on April 2, most economists forecast that those tariffs would dampen business spending. Now, that outlook has come true, as orders for new equipment plummeted in April.
Core durable goods orders, which exclude defense and aircraft, fell by 1.3% on the month—the steepest drop since October, just ahead of the election. The drop was driven largely by falling orders for vehicles and parts, which were down by 2.9% in April.
The data aligns with the increasingly pessimistic business sentiment on tariffs and the uncertainty they create.
Shipments of core capital goods, which also exclude defense and aircraft, declined by 0.1%. With orders of the same goods down for the month, we should expect shipments, which are proxies for the non-residential private investment component of gross domestic product, to fall further.
The first couple of months following the imposition of tariffs can be expected to show businesses pulling back spending while relying on existing inventories to absorb rising costs.
But once those inventories are depleted, companies will be forced to raise prices to protect their margins—costs that will ultimately be passed on to consumers.
Even with recent positive news on trade negotiations and delays in tariff implementation, uncertainty remains high. Business spending is likely to remain largely frozen in the months ahead.
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