Source: Economics Group of Wells Fargo Bank, N.A.
Summary
Durable goods orders came in better than expected in February, but strength was due to aircraft specifically, and the underlying orders trend remains weak as businesses are hesitant to invest amid increased economic uncertainty. A rebound in durable shipments, however, suggests equipment investment will be solid in the first quarter.
Businesses in Holding Pattern Awaiting Tariff Clarity
Durable goods orders surprised to the upside in February. Despite the Bloomberg consensus of 59 forecasters looking for a 1% drop in orders, total orders rose 0.9% with some modest upward revisions to the previous month of data as well. This better-than-expected report can be mostly traced to aircraft orders specifically. Orders for defense aircraft popped 9.3%, and nondefense aircraft orders were down ‘only’ 5%. Separately released Boeing data suggested more downside risk from aircraft and point to strike effects still working their way through the data.
While some of the gain may signal a front-running of tariffs by businesses, we expect the strength more so reflects normal volatility and a rebound after some weak data. Consider orders for autos for instance, which bounced 4% in February after four consecutive monthly declines.