Pick-up in US's business investment growth underway

April's durable goods figures of the US confirm that, following the earlier disruption caused by the unseasonably cold weather in the Northeast and the West Coast port dispute, the factory sector was getting back on track as spring approached. 


Admittedly, headline durable goods orders fell by 0.5% m/m in April, but that decline followed a massive 5.1% m/m rebound in March. Moreover, stripping out defense, orders increased by 0.2% m/m in April. Orders for commercial aircraft fell by 4.0% m/m last month, but that followed a 40.7% m/m increase in March. Excluding transportation, core orders increased by 0.5% m/m in April, after a 0.6% m/m gain in March. Those gains don't fully reverse the declines over the preceding few months, but it does appear that a spring rebound is developing. 
Most encouragingly, non-defense capital goods orders (ex. aircraft) increased by 1.0% m/m in April, following a 1.5% m/m gain in March. Shipments in the same category increased by 0.8% m/m last month and 1.0% m/m the month before that. 


The chart shows, underlying capital goods shipments are still well down on the peak reached last summer. The conventional wisdom is that the decline over the past nine months was driven principally by the contraction in the shale oil industry. But the timing doesn't quite fit. The downward trend in underlying capital goods orders began several months before the slump in oil prices really got going late last year and before the number of drilling rigs began to decline. Furthermore, that downward trend has been due to a drop in machinery for the industrial and construction sectors as much as a decline in the mining machinery specifically. Whatever the cause, the rally in shipments over the past two months suggests the downward trend may now be over. 


"The upshot is that the anticipated pick-up in the growth rate of business investment in equipment in the second quarter appears to be firmly on track. This only makes us more confident that second-quarter GDP growth will be a healthy 2.5% to 3.0% annualized", according to Capital Economics.