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New orders for key U.S.-made capital goods unexpectedly rose in March, but the gains are unlikely to be sustainable amid the novel coronavirus outbreak, which has virtually shut down the country and contributed to a collapse in crude oil prices.
Despite the slight pickup in demand reported by the Commerce Department on Friday, shipments of these goods dropped further last month, suggesting that a downturn in business investment persisted into the first quarter and would contribute to what economists expect will be the sharpest economic contraction since the Great Recession.
"That's not going to last with company after company saying they are slashing capex in this month's earnings calls," said Chris Rupkey, chief economist at MUFG in New York. "If growth isn't happening there's no need to buy the equipment to produce more goods if the demand has simply evaporated."
Orders for non-defense capital goods excluding aircraft, a closely watched proxy for business spending plans, edged up 0.1 percent last month. Data for February was revised up to show these so-called core capital goods orders falling 0.8 percent instead of dropping 0.9 percent as previously reported.
A General Motors worker monitors a Level 1 medical mask making machine, as the spread of the coronavirus disease (COVID-19) continues, at the former GM Transmission facility in Warren, Michigan, U.S., April 23, 2020. /Reuters
Economists polled by Reuters had forecast core capital goods orders plunging 6.0 percent in March. Core capital goods orders increased 1.0 percent on a year-on-year basis in March.
The economic picture is deteriorating rapidly amid nationwide lockdowns to control the spread of COVID-19, the potentially lethal respiratory illness caused by the virus. A record 26.5 million Americans have filed for unemployment benefits since mid-March. Retail sales, homebuilding, business activity and consumer confidence have weakened sharply.
Much of the slump in economic activity occurred in the second half of March when states and local governments ordered nonessential businesses to close and enforced "stay-at-home" orders that have affected more than 90 percent of Americans.
The deepening economic slump has seen a handful of states, including Georgia, prematurely rushing to reopen their economies this weekend against the advice of health experts. Economists also warn that such steps could unnecessarily prolong the economic downturn, especially if this triggers a new wave of infections as predicted by health experts.
There is also no guarantee that consumers will feel safe to start visiting restaurants and other social venues.
A separate report from the University of Michigan on Friday showed its measure of consumer sentiment dived a record 17.3 points to 71.8 in April, the lowest since December 2011. But sentiment improved slightly from the middle of the month.
"As long as the virus is running wild, a significant segment of the population will either be unwilling to get back into the world or will do so in a limited way," said Joel Naroff, chief economist at Naroff Economics in Holland, Pennsylvania.
"The generation with the most disposable income is the baby-boomer generation and they are also in the high-risk category.If they get back in the game cautiously, as I suspect will be the case, the V-shape recovery theory falls apart."
Stocks on Wall Street were mixed. The dollar was steady against a basket of currencies, while U.S. Treasury prices fell.
(REUTERS)
