U.S. core capital goods orders, shipments increase strongly in April

WASHINGTON(Reuters) - New orders for key U.S.-made capital goods increased more than expected in April and shipments rose solidly, suggesting strong momentum in business spending on equipment growth persisted early in the second quarter.

FILE PHOTO: Matt Dillion and Chad Damron weld an upper deck assembly at Look Trailers cargo trailer manufacturing facility in Middlebury, Indiana, U.S., April 1, 2021. Picture taken April 1, 2021. REUTERS/Eileen T. Meslar/File Photo

Orders for non-defense capital goods excluding aircraft, a closely watched proxy for business spending plans, jumped 2.3% last month, the Commerce Department said on Thursday. These so-called core capital goods orders increased 1.6% in March.

Economists polled by Reuters had forecast core capital goods orders rising 1.0%. Orders shot up 14.7% year-on-year in April.

Business investment on equipment has enjoyed double-digit growth over the last three quarters thanks to a shift in demand towards goods from services during the COVID-19 pandemic and massive fiscal stimulus to soften the blow to the economy from the public health crisis.

Though demand is starting to revert back to services as vaccinations allow for broader economic re-engagement, appetite for goods remains healthy. But manufacturing, which accounts for 11.9% of the U.S. economy, is experiencing shortages of labor and raw materials, impacting production at some industries.

Last month, core capital goods orders were lifted by machinery, primary and fabricated metal products, as well as computers and electronic products. But orders for electrical equipment, appliances and components fell 0.9%.

Shipments of core capital goods increased 0.9% after rising 1.5% in March. Core capital goods shipments are used to calculate equipment spending in the government’s gross domestic product measurement.

With households sitting on more than $2 trillion in excess savings, demand booming and inventories low, businesses are likely to continue investing in equipment to boost production.

Orders for durable goods, items ranging from toasters to aircraft that are meant to last three years or more, dropped 1.3% in April after rising 1.3% in March. They were pulled down by a 6.7% decline in orders for transportation equipment, which followed a 3.1% decrease in March.

Orders for civilian aircraft increased 17.4%. Boeing reported on its website that it had received only 25 aircraft orders last month, mostly 737 MAX jets, compared to 196 in March. The U.S. government late last year lifted a 20-month grounding of the aircraft that was put in place after crashes in Indonesia and Ethiopia.

Orders for motor vehicles and parts fell 6.2% in April after rising 3.8% in March. Motor vehicle production has been hit by a global semiconductor chip shortage. Output of computers and electronic products has also been impacted. Unfilled durable goods orders rose in April for a third straight month.

Reporting by Lucia Mutikani; Editing by Catherine Evans