Durable Goods Report: Still Waiting for a Turnaround in Business Investment
By SBE Council at 24 March, 2017, 10:45 am
by Raymond J. Keating-
The February durable goods report offers a mixed, at best, story on private business investment. In fact, there are some key points that generate continued concerns.
Read why the durable goods report is an important indicator for the economy here.
The topline report from the U.S. Census Bureau was: “New orders for manufactured durable goods in February increased $3.9 billion or 1.7 percent to $235.4 billion… This increase, up two consecutive months, followed a 2.3 percent January increase. Excluding transportation, new orders increased 0.4 percent. Excluding defense, new orders increased 2.1 percent.”
The numbers excluding transportation and defense are looked at because those areas tend to be very volatile. But there’s more to weigh.
Nondefense capital goods excluding aircraft is a noteworthy number because it provides a measure of private investment in equipment and software, which accounts for a significant share of private investment in the GDP report. Nondefense capital goods excluding aircraft shipment numbers provide some information about output in the current quarter, and orders provide some indications for future investment.
So, nondefense capital goods excluding aircraft shipments in February were up 1.0 percent, after a decline of 0.3 percent in January. As for orders, they were down by 0.1 percent in February, and up by only 0.1 percent in January.
These generally are not positive indicators for nonresidential fixed investment – that is, business investment – in the first quarter of 2017, or coming quarters. And keep in mind that for all of 2016, real nonresidential fixed investment actually declined by 0.5 percent. It was the first decline since the recession year of 2009.
A return to sustained, robust economic growth requires strong private-sector investment. That has been lacking for a decade now, and some important data in the latest durable goods report do not point to a turnaround just yet.
Of course, changes on the policy front – such as pro-investment, pro-growth tax and regulatory relief and reform – can change this outlook in a substantive way. But substantial movement and action on these policies still need to occur to turn around these sluggish numbers.
Raymond J. Keating is chief economist for the Small Business & Entrepreneurship Council.
Keating’s latest book published by SBE Council is titled Unleashing Small Business Through IP: The Role of Intellectual Property in Driving Entrepreneurship, Innovation and Investment and it is available free on SBE Council’s website here.