Durable goods orders rose 1.2% in February to $2.9 billion from 2.49 billion, outperforming the expected decline of -0.8%. January figures were revised higher from -0.2% to -0.1%, according to the latest report from the US Census Bureau released on Wednesday.
Key Takeaways
- Durable goods orders rose on increased demand for autos and appliances.
- A measure of business investment dropped -0.8%.
- The strong report is likely to be the last positive durable goods orders report for the near future.
February durable goods orders outperformed expectations, with strong demand for cars, trucks, electrical appliances, and electrical components. Excluding the volatile component of transportation, orders dropped -0.6%. Excluding defense, new orders rose 0.1%. Orders fell for machinery, computers and networking gear, fabricated metal parts, and primary metals. Business investment fell -0.8%, and is likely to tumble over the coming months due to the worsening impact of the coronavirus outbreak on the US and global economies.
Shipments rose $2.1 billion, or 0.8%, to $252.3 billion, following seven consecutive months of decline. Transportation equipment, also after seven months of decline, drove the increase with $2.4 billion gains to $85.0 billion. Inventories saw almost no change with $0.1 billion gains. Unfilled orders rose $1.4 billion, or 0.1%. Capital goods orders in February rose $0.4 billion, or 0.5%.
Headline Durable Goods Orders Up 1.2% in February https://t.co/U8fCUTLOcQ Real Macro pic.twitter.com/iSpOpPy809
— Real Macro Economics (@RealMacroEcon) March 25, 2020
Recession Incoming
The US is likely to slip into a recession during 2020, with reduced orders and investment in most industries nationwide, and according to the IMF, the impact of the coronavirus worldwide will be at least as bad as that of the Great Recession of 2008. An economy recovery could begin as early as mid-summer according to some economists, but this will depend on the efficacy of viral containment procedures worldwide.
Industries in other nations have already been hit hard by the virus, with China as the epicenter seeing a particularly severe impact. Chinese industrial output tumbled a record 13.5% during January and February combined, with retail sales also taking a major hit. Many economists are worried that the impact in China may come to pass throughout other nations as well, and many US businesses and services have already ceased operations in an effort to contain the virus. An estimated 1 million Americans will lose their jobs by the end of March due to the outbreak, with 70,000 people applying for unemployment benefits in the week ended March 14.
Market Reaction
Gold prices have seen a major correction following the strong gains in yesterday’s session. Spot gold last traded at $1,617.82/oz, down -2.55% with a high of $1,637.52/oz and a low of $1,600.42/oz. So far, gold has found support near the crucial psychological barrier at $1,600. The US has agreed to a $2 trillion financial aid package for US businesses and citizens impacted by the coronavirus outbreak, and this news may be bullish for equities and bearish for gold, creating selling pressure.
