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New orders for capital and durable goods produced in the US dropped more than expected in April, supporting the view that the economy is slowing after an anomalous Q1 GDP boost.

Key Takeaways

• Durable goods orders dropped -2.1% in April vs. -2% expected following a 2.7% gain the month before.
• Non-defense capital goods orders excluding aircraft dropped 0.9% last month.
• The slowdown was largely caused by exports and an excess of inventories.

After unexpectedly strong growth in Q1 2019, the US economy seems to be slowing down, with manufacturing struggling in particular. Exports and an inventory build-up may have contributed to the Q1 growth spurt, with the trade war resulting in stockpiled goods which were suddenly sold off.

The Commerce Department said on Friday that core-capital goods, a proxy for business spending plans dropped -0.9% in April with reduced demand for non-defence capital goods excluding aircraft. Core-capital goods in March were revised down to a 0.3% gain vs. the 1% gain originally reported. Core-capital goods were predicted to drop by only -0.3% in April. Annually, core-capital gods rose 2.6%.

Shipments of these goods saw no change in April after posting a -0.6% drop the month before. This figure was revised downward from -0.1%. This metric is used to measure equipment spending in GDP measurement.

Weak Manufacturing

Industrial production in April dropped and factory activity in May sunk near a 10-year low. Orders for machinery rose 0.1% after dropping -2% in March. Computer and electronic product orders dropped -0.4%, while orders for electrical equipment, appliances, and components rose 0.9%.

Primary metals saw reduced demand. Q2 GDP estimates are now below 2% compared to the 3.2% growth seen in Q1. Durable goods dropped 2.1% in April after rising 1.7% the month before, while orders for the volatile category of transportation equipment dropped -5.9% after rising 5.9% the month prior. Durable goods shipments fell -1.6% and inventories rose 0.4%.

April 2019 new orders for manufactured durable goods, down two of the last three months, -2.1% to $248.4b. Transportation equipment, also down two of the last three months, drove the decrease, -5.9%. https://t.co/xKVTIhs1kn #Census pic.twitter.com/Jr7oXaBNqc

— U.S. Census Bureau (@uscensusbureau) May 24, 2019

Orders for motor vehicles and parts saw a -3.4% drop, the most in 11 months. Non-defense aircraft orders dropped -25.1% after rising 7/8% the month before. Boeing reports that only four aircraft orders were placed in April compared to 44 in March, a lingering effect of the uncertainty stemming from the faulty 737 aircraft which caused multiple fatal crashes.

Businesses are working to get rid of stockpiled goods, resulting in reduced demand for new orders at factories. The trade war continues to escalate, disrupting the industry, and a stock-market sell-off and generally tame global economic growth are also factors in the weak data.

The ongoing trade war is now expected to impact exports which saw some short-lived relief earlier in the year as China made good on the agreement to purchase American goods

Market Reaction

Spot gold is trading up 0.69% at $1,282.33/oz with a high of $1,285.73/oz and a low of $1,281.06/oz. Gold was not majorly affected by the durable goods orders report released on Friday, but is likely facing selling pressure from a rebound in equities on the same day.