WASHINGTON, Feb 27 (Reuters) - Orders for long-lasting U.S. manufactured goods fell by the most in nearly four years in January amid a sharp drop in bookings for commercial aircraft, while the outlook for business investment on equipment was mixed.
The report from the Commerce Department on Tuesday added to a series of data this month, including retail sales, housing starts and manufacturing production in suggesting the economy lost momentum at the start of the year.
Some of the weak readings have been blamed on freezing temperatures last month as well as difficulties adjusting the data for seasonal fluctuations at the start of the year.
Nonetheless, economists are not forecasting a recession. With the labor market still tight and inflation elevated, the run of soft data is unlikely to push the Federal Reserve to start cutting interest rates before June.
"Business capex lays the seeds for future economic growth as the expenditures enable companies to invest more to meet the demand for their goods and services down the road," said Christopher Rupkey, chief economist at FWDBONDS in New York. "While economists have taken down their recession warnings, business leaders with boots on the ground are less certain of the economy in the future."
Orders for durable goods, items ranging from toasters to aircraft meant to last three years or more, plunged 6.1% last month, the Commerce Department's Census Bureau said. That was the largest decline since April 2020, when the economy was reeling from the first wave of COVID-19 infections.
Data for December was revised lower to show orders falling 0.3% instead of being unchanged as previously reported.
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Economists polled by Reuters had forecast durable goods orders tumbling 4.5%. Orders fell 0.8% year-on-year in January.
Civilian aircraft orders plunged 58.9% last month after rising 1.0% in December. Boeing (BA.N), opens new tab reported on its website that it had received only three orders for commercial aircraft in January, sharply down from 371 in December.
The planemaker is under pressure after a cabin panel blew out on an Alaska Airlines jet mid-air in early January. The Federal Aviation Administration last month barred Boeing from expanding production of its best-selling 737 MAX narrowbody planes to improve quality control.
Overall transportation orders dropped 16.2% last month after slipping 0.6% in December. Orders for motor vehicles and parts fell 0.4%. Excluding transportation, durable goods orders fell 0.3% last month after dipping 0.1% in December.
There were decreases in orders of primary and fabricated metals. Machinery orders were unchanged. But orders for computers and electronic products increased 1.4%, while those for electrical equipment, appliances and components rose 0.9%.
LONG ROAD TO RECOVERY
There are signs that manufacturing, which accounts for 10.3% of the U.S. economy, is regaining its footing after production eased in 2023 amid 525 basis points worth of interest rate hikes from the U.S. central bank since March 2022. A survey from the Institute for Supply Management early this month showed its manufacturing PMI contracting marginally in January.
But a full recovery is still a long way away, even with some pockets of strength. Non-defense capital goods orders excluding aircraft, a closely watched proxy for business spending plans, edged up 0.1% in January after a revised 0.6% decline in the prior month.
These so-called core capital goods orders were previously reported to have gained 0.2% in December. Core capital goods shipments rose 0.8% after nudging up 0.1% in December.
Nondefense capital goods orders plummeted 19.4%, while shipments fell 3.0%, the largest decline since November 2020, after dropping 1.0% in December. Shipments of these goods go into the calculation of the business spending on equipment component in the gross domestic product report.
"This points to a much weaker start for business equipment spending in the first quarter following a modest gain in the prior quarter, said Priscilla Thiagamoorthy, a senior economist at BMO Capital Markets in Toronto.
Business spending on equipment rebounded modestly in the fourth quarter after contracting in the July-September period. The economy grew at a 3.3% annualized rate last quarter after expanding at a 4.9% pace in the third quarter.
Reporting by Lucia Mutikani; Editing by Chizu Nomiyama and Andrea Ricci
