WASHINGTON, May 27 (Reuters) - New orders for key U.S.-manufactured capital goods plunged in April amid mounting uncertainty over the economy because of tariffs, suggesting business spending on equipment weakened at the start of the second quarter.
The report from the Commerce Department on Tuesday also showed shipments of these goods falling last month. Economists said President Donald Trump's flip-flopping on import duties was making it difficult for businesses to plan ahead. That has been evident in the deterioration in sentiment among businesses.
"I have predicted for months that business investment will be the main driver of a softer economic performance this year, as executives postpone their capital projects until they have more clarity on policy," said Stephen Stanley, chief U.S. economist at Santander U.S. Capital Markets. "These data offer the first confirming evidence of that hypothesis."
Non-defense capital goods orders excluding aircraft, a closely watched proxy for business spending plans, tumbled 1.3% last month after an upwardly revised 0.3% gain in March, the Commerce Department's Census Bureau said. Economists polled by Reuters had forecast these so-called core capital goods orders dipping 0.1% after a previously reported 0.2% drop in March.
Core capital goods shipments slipped 0.1% after increasing 0.5% in March. Nondefense capital goods orders slumped 19.1%. Shipments of these goods rebounded 3.5% after falling 1.1% in March.
Front-running by businesses eager to avoid higher prices from Trump's sweeping tariffs on imports contributed to business spending on equipment, mostly information processing equipment, surging at its fastest rate in 4-1/2 years in the first quarter.
That helped to limit the drag on gross domestic product from a flood of imports. Trump has delayed higher import duties on most countries until July. The White House this month announced a deal with Beijing to slash tariffs on Chinese goods to 30% from 145% for 90 days.
TARIFFS WHIPLASH
But Trump last week ratcheted up his trade war, proposing a 50% tariff on European Union goods starting June 1 and threatened Apple (AAPL.O), opens new tab with a 25% duty on any iPhones manufactured outside the United States.
Trump at the weekend backed off his threat against the EU, restoring a July 9 deadline. He sees tariffs as a tool to, among other things, revive a long-declining U.S. industrial base, a feat that economists argue would be difficult to achieve.
While orders for computers and electronic products rebounded 1.0% last month, bookings for communications equipment decreased 2.6%. Electrical equipment, appliances and components orders fell 0.2%. But orders for machinery increased 0.8% as did those for fabricated metal products.
Orders for durable goods, items ranging from toasters to aircraft meant to last three years or more, dropped 6.3% last month after a slightly upwardly revised 7.6% rise in March.
Durable goods orders were previously reported to have jumped 7.5% in March. They were last month weighed down by a decline in orders for commercial aircraft as well as the fading boost from the tariff-related front-running.
Boeing (BA.N), reported on its website that it had received only eight aircraft orders in April, down from 192 in March.
Orders for motor vehicles and parts decreased 2.9%.
Overall transportation orders plummeted 17.1% after soaring 23.5% in March.
"Many of the inputs that go into the manufacture of durable goods in America are made in countries overseas which will need to be imported at what looks like could be a much higher, jacked-up price when accounting for tariffs," said Christopher Rupkey, chief economist at FWDBONDS. "Trying to revitalize American manufacturing will be difficult if factories cannot get the parts they need in a timely manner and at a reasonable cost."
Reporting by Lucia Mutikani; Editing by Ros Russell and Andrea Ricci
