New orders for long-lasting U.S. manufactured goods unexpectedly rose in February, but are set to decline as strict measures to contain the coronavirus pandemic sap demand and push the economy into recession.
Orders for durable goods, items ranging from toasters to aircraft that are meant to last three years or more, accelerated 1.2% last month, the Commerce Department reported on Wednesday. Data for January was revised up to show durable goods orders gaining 0.1% instead of slipping 0.2% as previously reported. Economists polled by Reuters had forecast durable goods orders dropping 0.8% in February.
The highly contagious coronavirus, which causes a respiratory illness called COVID-19 has brought the economy to a sudden halt. Governors in at least 18 states, accounting for nearly half the country’s population, have ordered residents to stay mostly indoors, except for necessary trips to grocery stores, pharmacies, gas stations, and doctors’ offices.
“Non-essential” businesses have also been ordered closed, leading to massive unemployment and a rush to apply for jobless benefits. Though these measures have hit the services sector harder, manufacturing has not been spared as supply chains become fractured. The sector, which accounts for 11% of the U.S. economy, had been showing signs of stabilizing after a prolonged downturn before the outbreak of the virus.
A survey by data firm IHS Markit on Tuesday showed its gauge of U.S. factory activity dropped in March to its lowest level since August 2009. The abrupt stop in business activity has led analysts to predict that the economy was already in recession.
Recessions in the United States are called by the National Bureau of Economic Research. The NBER’s business cycle dating committee does not define a recession as two consecutive quarters of decline in real gross domestic product, as is the rule of thumb in many countries. Instead, it looks for a drop in economic activity, spread across the economy and lasting more than a few months.
The Federal Reserve has taken extraordinary steps to aid the economy, including slashing interest rates to zero, promising bottomless dollar funding and implementing an array of programs to help keep companies afloat.
Durable goods orders rose 0.4% on a year-on-year basis in February. Monthly durable goods orders were boosted by a 4.6% rebound in orders for transportation equipment, which followed a 0.9% decline in January.
Orders for civilian aircraft slipped 0.3% last month after soaring 356.7% in January. Motor vehicles and parts orders accelerated 1.8% in February after falling 0.5%.
Orders for non-defense capital goods excluding aircraft, a closely watched proxy for business spending plans, dropped 0.8% in February after rising by a slightly downwardly revised 1.0% in January. These so-called core capital goods orders were previously reported to have increased by 1.1% in January.
There were decreases in orders for machinery, primary metals and computers and electronics products in February. But demand for electrical equipment, appliances and components increased by 1.3% last month.
Shipments of core capital goods fell by 0.7% last month. Core capital goods shipments are used to calculate equipment spending in the government’s gross domestic product measurement.
They increased by 1.1% in January. Business investment has contracted for three straight quarters, the longest such stretch since 2009. Economists have blamed the business investment downturn on the Trump administration’s 20-month-old trade war with China.