Weak U.S. factory, consumer confidence data cloud growth outlook

[April 27, 2016]  By Lucia Mutikani

WASHINGTON (Reuters) - Orders for long-lasting U.S. manufactured goods rebounded far less than expected in March as demand for automobiles, computers and electrical goods slumped, suggesting the downturn in the factory sector was far from over.

Tuesday's report from the Commerce Department also implied that business spending and economic growth were weak in the first quarter. Prospects for the second quarter darkened after another report showed an ebb in consumer confidence in April.

The data came as Federal Reserve officials started a two-day policy meeting. The U.S. central bank is expected to leave its benchmark overnight interest rate unchanged on Wednesday. The Fed raised rates in December for the first time in nearly a decade.

"These disappointing reports will likely add to the caution at the Fed. Given the weak performance in these two key segments of the economy, we expect the rebound in growth momentum in the second quarter to be quite weak," said Millan Mulraine, deputy chief economist at TD Securities in New York.

The Commerce Department said orders for durable goods, items ranging from toasters to aircraft meant to last three years or more, increased 0.8 percent last month after declining 3.1 percent in February.

Non-defense capital goods orders excluding aircraft, a closely watched proxy for business spending plans, were unchanged after a downwardly revised 2.7 percent decrease in the prior month. These so-called core capital goods orders were previously reported to have decreased 2.5 percent in February. Economists had forecast durable goods orders advancing 1.8 percent last month and core capital goods increasing 0.8 percent. Shipments of core capital goods - used to calculate equipment spending in the gross domestic product report – rose 0.3 percent after slumping 1.8 percent in February.

Manufacturing, which accounts for 12 percent of the U.S. economy, is struggling with the lingering effects of the dollar's past surge and sluggish overseas demand.

Factories also have been hurt by deep spending cuts on capital projects by oilfield service firms like Schlumberger <SLB.N> and Halliburton <HAL.N> as well as efforts by businesses to sell a stockpile of unwanted inventory.

These drags have rippled through the economy, undercutting export growth, business investment and profits.

WEAK FIRST QUARTER

The durable goods report added to recent reports on retail sales, trade and industrial production in suggesting economic growth slowed further in the first quarter. The economy grew at an anemic 1.4 percent annualized rate in the fourth quarter.

First-quarter GDP growth estimates are as low as a 0.3 percent rate. The government will publish its advance first-quarter GDP growth estimate on Thursday.

A second report on Tuesday from the Conference Board showed its consumer confidence index fell 1.9 points to a reading of 94.2 in April. Consumers were a bit pessimistic on the economy's short-term prospects, implying they did not expect a pick-up in activity.

Households' views of the labor market were mixed this month. The share of consumers who believed jobs were "plentiful" slipped, while those who said employment was "hard to get" fell.

The dollar fell against a basket of currencies. Prices for U.S. government debt were trading lower, while stocks on Wall Street were mixed.

Labor market strength has helped support the housing market, despite distress in the industrial sector. A third report on Tuesday showed house prices increased a solid 5.4 percent in February from a year ago.

While most manufacturing surveys have painted a fairly upbeat picture of the sector in recent months as a dollar rally fizzled, so-called hard data such as industrial production and factory orders have remained depressed.

There had been hope that manufacturing was regaining its footing as the dollar weakened, oil prices stabilized and the inventory drawdown drew to close.

The dollar is down 2.7 percent against the currencies of the United States' main trading partners so far this year, after gaining 20 percent between June 2014 and December 2015.

"Although this month's flattening in core capital goods orders suggests we may have reached a bottom, the overall tone of the report suggests we are not yet seeing a reacceleration in the sector," said Jesse Edgerton, an economist at JPMorgan in New York.
 

The rise in durable goods orders last month was led by a65.7 percent jump in defense aircraft orders, which lifted bookings for transportation equipment 2.9 percent. There were also increases in orders for primary metals and machinery.

But orders for civilian aircraft, computers and electronic products fell as did those for electrical equipment, appliances and components. With demand for autos softening in recent months after sales hit a record high in 2015, orders for motor vehicles and parts tumbled in March.

(Reporting by Lucia Mutikani; Editing by Paul Simao)

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