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 The report from the Commerce Department on Friday came on the heels
of lukewarm data on retail sales, employment and housing starts that
have hinted at insufficient growth momentum that could prompt the
Federal Reserve to delay raising interest rates until later this
year.
"This is consistent with a sluggish rebound in growth. It's shedding
more doubt on the Fed's willingness to raise rates mid-year," said
Gennadiy Goldberg, an economist at TD Securities in New York.
Non-defense capital goods orders excluding aircraft, a closely
watched proxy for business spending plans, declined 0.5 percent last
month after a revised 2.2 percent drop in February, which was the
biggest decline since July 2013.
The so-called core capital goods orders were previously reported to
have declined 1.1 percent in February. Economists had forecast these
orders gaining 0.3 percent last month.
The weakness mirrors other manufacturing indicators such as
industrial production and various regional factory surveys.
The dollar fell against a basket of currencies after the report,
while prices for U.S. government debt rose. U.S. stocks were trading
marginally higher as investors were cheered by strong results from
Google Inc <GOOGL.O>, Amazon.com Inc <AMZN.O> and Microsoft Corp
<MSFT.O>.
The Fed has kept overnight interest rates near zero since December
2008, but a number of officials have said an increase will likely be
considered at its June policy-setting meeting.
MANUFACTURING STRUGGLING
Manufacturing has been undermined by the buoyant dollar, whose 12.1
percent appreciation against the currencies of the United States'
main trading partners since last June has eroded overseas profits of
multinational companies like Procter & Gamble Co <PG.N>.
The world's largest household products maker on Thursday reported a
8.3 percent decline in quarterly sales.
In addition, lower energy prices have cut into domestic oil
production, reducing demand for equipment by oil-field companies,
including Schlumberger <SLB.N> and Halliburton <HAL.N>.
Schlumberger, the world's No.1 oil-field services provider, has cut
its capital expenditure plans for this year by about $500 million to
$2.5 billion. Halliburton slashed its capex by about 15 percent to
$2.8 billion.
"Cheap oil and a strong dollar, while beneficial to consumers, are
putting serious pressure on manufacturers," said Jay Morelock, an
economist at FTN Financial in New York.
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The dollar and reduced capex spending by oil-field firms combined
with a harsh winter and softer global demand to slow U.S. growth at
the start of the year.
In March, shipments of core capital goods - which are used to
calculate equipment spending in the government's gross domestic
product measurement - fell 0.4 percent after a downwardly revised
0.1 percent gain in February.
Shipments in February were previously reported to have risen 0.3
percent. As a result, JPMorgan lowered its first-quarter GDP growth
estimate by one-tenth of a percentage point to a 0.6 percent annual
pace.
Barclays trimmed its forecast to a 1.1 percent rate from a 1.2
percent pace. The economy expanded at a 2.2 percent pace in the
fourth quarter. The government will publish its snapshot of
first-quarter GDP next Wednesday.
Pointing to prolonged weakness in manufacturing, which accounts for
about 12 percent of the U.S. economy, unfilled orders for core
capital goods fell for a second straight month in March after barely
rising in January.
"We have not seen the full ramifications of the strong dollar and
the drop in oil-related investment, so that could continue to play
out," said Thomas Costerg, a U.S. economist at Standard Chartered
Bank in New York. "The focus is now on services and consumers in the
hope that they are going to pick up the tab. So far we are not
seeing signs of that."
A surge in transportation equipment buoyed overall orders for
durable goods - items ranging from toasters to aircraft that are
meant to last three years or more - which rebounded 4.0 percent last
month. That was the largest increase since July last year and
followed a 1.4 percent decline in February.
(Reporting by Lucia Mutikani; Editing by Andrea Ricci)
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