US factories saw a drop in business equipment orders in February for the third time in four months, an indication that the trade war is continuing to impact manufacturing. Durable goods dropped 1.6% vs 1.2% expected.

Key Takeaways

• After a 0.4% increase in January, durable goods orders dropped 1.6%, below expectations.
• Excluding the volatile component of transportation equipment, durable goods orders rose by 0.1%, in line with expectations.
• Non-defense capital goods excluding aircraft dipped by 0.1%.

The Commerce Department stated that orders for non-defense capital goods excluding aircraft, a measure used to gauge future business spending, dropped 0.1% due to lower demand for electronic products, computers, and machinery.

Orders for civilian aircraft and parts plunged 31.3%, perhaps impacted slightly by the recent quality control problems faced by Boeing with restrictions placed on the Boeing 737 MAX aircraft due to safety concerns following a fatal crash. The firm reported 5 orders in February vs 46 the month before.

January data was revised slightly higher with core-capital goods orders rising 0.9% rather than the initially reported figure of 0.8%. The 0.1% dip in February was below flat market expectations – core capital goods orders rose 2.6% annually.

Shipments of core capital goods remained flat after rising 0.1% in January – these shipments help gauge upcoming GDP figures. Q1 2019 estimates vary from 1.2% to 2.1% after a 2.2% reading in Q4 boosted partially by business spending on equipment.

US durable goods orders down 1.6% in Feb, largely due to 31.1% drop in civilian aircraft orders. 0.1% dip in core capital goods orders (excluding defence and aircraft) was the 5th drop in 7 mths. Important for cap goods sector but also a worrying signal for broader economy. pic.twitter.com/dEOkMUxWKp

— the belgian dentist (@belgiandentists) April 2, 2019

Gains and Losses

Gains were seen in electrical equipment, primary metals, and fabricated metal products. Sectors that saw reduced demand include motor vehicles and parts, civilian aircraft and parts, computers, machinery, and electronic products.

Machinery orders dropped 0.3% after a 2% rise in January. Energy firms have cut back on operational oil rigs even amid an oil price rebound in order to reduce expenses and consolidate earnings. Computers and electronic products orders fell by 0.3%. Appliances and electrical equipment rose 1% after a 1.3% increase in January.

Durable goods orders includes all products designed to last for more than three years.

As the benefits of the $1.5 trillion tax cut begin to fade, the effects of the US/China trade war are still being felt, compounded by uncertainty over Britain’s EU exit and the effects that will have on the global economy.

Market Reaction

The price of gold is up 0.08% today, last trading at $1,289.46/oz with a high of $1,290.35/oz and a low of $1,285.53/oz. After weathering selling pressure earlier in the session, gold has rebounded, perhaps influenced by the weak manufacturing report released on Tuesday by the Commerce Department. The report could be bearish for the US dollar and consequentially bullish for gold which is now inching higher towards the $1,290 line.