Tentative signs of recovery in US manufacturing; consumer confidence steady

By Lucia Mutikani

WASHINGTON (Reuters) – Orders for long-lasting U.S. manufactured goods increased more than expected in February, while business spending on equipment showed tentative signs of recovery as the economy’s growth prospects in the first quarter remained upbeat.

But November’s presidential election, a rematch between incumbent Joe Biden and Republican challenger Donald Trump, looms large. A survey from the Conference Board on Tuesday showed Americans growing increasingly concerned about the political environment and less worried about a recession over the next 12 months.

The rebound in durable goods orders recouped some of January’s sharp losses, and implied manufacturing could be regaining its footing after struggling in the aftermath of the Federal Reserve’s hefty interest rate hikes.

“The data suggest that business equipment investment is beginning to recover, and with corporate bond yields likely to fall a little further over the coming months while manufacturing activity appears to be picking up again, we suspect that recovery has further to run,” said Andrew Hunter, deputy chief U.S. economist at Capital Economics.

Orders for durable goods, items ranging from toasters to aircraft meant to last three years or more, rose 1.4% last month, the Commerce Department’s Census Bureau said. Data for January was revised lower to show orders falling 6.9% instead of the previously reported 6.2%. Economists polled by Reuters had forecast durable goods orders would rise 1.1%.

Orders advanced 1.8% on a year-on-year basis in February.

Transportation orders climbed 3.3% in February after dropping 18.3% in January. They were boosted by a 24.6% increase in civilian orders after plummeting 63.5% in January. Orders for motor vehicles and parts accelerated 1.8%.

Orders of primary metals rebounded 1.4% and those of fabricated metals rose 0.8%. Machinery orders increased 1.9%.

The outlook for manufacturing, which accounts for 10.3% of the economy, is steadily improving amid expectations that the U.S. central bank will start cutting rates this year.

A survey from the Institute for Supply Management this month showed manufacturers were fairly upbeat in March about sales and business conditions. Factory output rebounded in February.

The Fed has hiked its policy rate by 525 basis points to the current 5.25%-5.50% range since March 2022.

But the sector is not out of the woods yet. Orders for computers and electronic products fell 1.4% last month, while those for electrical equipment, appliances and components decreased 1.5%.

Though Boeing reported on its website that it had received 15 orders for commercial aircraft, up from only three in January, last month marked a continued sharp slowdown from the end of 2023.

The planemaker is under pressure after a cabin panel blew out in mid-air on an Alaska Airlines jet in early January, with the Federal Aviation Administration barring Boeing from expanding production of its best-selling 737 MAX narrow-body planes to improve quality control.

Boeing announced on Monday that CEO Dave Calhoun would step down by the end of 2024 as part of a broad management shakeup.

“We continue to see some early signs of recovery from the production data, though we think we’re still a few months out from a more sustained recovery,” said Shannon Grein, an economist at Wells Fargo.

Stocks on Wall Street rose. The dollar slipped against a basket of currencies. U.S. Treasury prices mostly lower.

MIXED VIEWS

Non-defense capital goods orders excluding aircraft, a closely watched proxy for business spending plans, rose 0.7% in February after falling 0.4% in the prior month.

These so-called core capital goods orders were previously reported to have been unchanged in January. Core capital goods shipments fell 0.4% after rising 0.8% in January.

Non-defense capital goods orders advanced 4.4%, while shipments in that category rose 2.7% after declining 3.0% in January. Shipments of these goods go into the calculation of the business spending on equipment component in the gross domestic product report.

Economists were divided on what the shipments data meant for business spending investment in equipment this quarter. Some were penciling in a mild rebound while others saw a further contraction, arguing that the rise had been eroded by the increase last month in producer prices.

Business spending on equipment contracted in the fourth quarter. It has declined in four of the last five quarters.

“Core capital goods shipments have been growing at about a 2% pace so far in the first quarter, suggesting that business investment in equipment may make a mild positive contribution to GDP growth this quarter,” said Lou Crandall, chief economist at Wrightson ICAP.

The Atlanta Fed left its first-quarter GDP growth estimate unchanged at a 2.1% annualized rate. The economy grew at a 3.2% rate in the fourth quarter.

Consumers are noticing the economy’s resilience, though that is being eclipsed by rising worries over the upcoming election.

In a separate report, the Conference Board said its consumer confidence index was little changed at 104.7 in March.

“Recession fears continued to trend downward,” said Dana Peterson, chief economist at the Conference Board. “Meanwhile, consumers expressed more concern about the U.S. political environment compared to prior months.”

That mirrors findings in the University of Michigan survey earlier this month. Consumers in the Conference Board survey were upbeat about the labor market.

The survey’s so-called labor market differential, derived from data on respondents’ views on whether jobs are plentiful or hard to get, widened to 32.2 from 30.1 in February.

This measure correlates to the unemployment rate in the Labor Department’s closely followed employment report. More consumers planned to buy motor vehicles and houses over the next six months.

There was some good news for potential homebuyers, with a separate report from the Federal Housing Finance Agency showing house prices slipped 0.1% in January, the first decline in 17 months, after gaining 0.1% in December. They increased 6.3% year-on-year after advancing 6.7% in December.

But with supply still tight, house prices could remain high.

“Spring home buying season will elevate home prices from winter lows, however the rate of annual gains is likely to slow given the difficult comparisons with last year’s spring surge in home prices,” said Selma Hepp, chief economist at CoreLogic.

(Reporting by Lucia Mutikani; Editing by Chizu Nomiyama and Paul Simao)