Surging U.S. manufacturers take temporary step back in February as durable-goods orders post first drop in 10 months

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Surging U.S. manufacturers take temporary step back in February as durable-goods orders post first drop in 10 months


The numbers: U.S. orders for long-lasting manufactured goods fell in February for the first time in 10 months, but the lapse in growth is likely to prove temporary as the economy regains momentum after a winter lull.

Orders for durable goods fell 1.1% in February in a month pockmarked by severe weather. These are products such as electronics, appliances, machines, cars and other transportation equipment meant to last at least three years

Economists surveyed by Dow Jones and the Wall Street Journal had forecast a 0.6% increase.

The setback appeared to be temporary. Manufacturers are making as many products now as they were before the pandemic, aided by a shift in spending toward goods and away from services such as leisure and travel.

What will add an extra boost in the coming months is massive federal stimulus and an increasing number of Americans being vaccinated. That should allow the economy to mend faster and allow million of people to return to work.

Read: Inflation worries are back. Should you worry?

What happened: The decline in orders last month was broad based. Bookings in every major category fell except for commercial passenger planes.

Auto makers reported the biggest drop in orders — a decline of 8.7%. Sales have been fairly strong throughout the pandemic, but a shortage of computer chips is making it harder for manufacturers to keep pace.

Orders in the oft-volatile category of commercial aircraft, meanwhile, jumped 103%. Boeing
BA,
-3.97%

reported more new orders than cancellations last month for the first time since the start of the pandemic.

If transportation is excluded, durable-goods orders slipped a smaller 0.9% in February. Regular ups and downs in transportation often exaggerate monthly changes in the level of demand.

A key measure of business investment, meanwhile, also fell in February after nine straight increases. These are known as core orders and exclude defense and transportation.

Businesses are still investing, but cautiously so in light of the pandemic. They are preparing for the end of the pandemic and a potential explosion in new orders as the global economy heals.

The one worry: Many key materials used in the production of goods, ranging from lumber to computer chips, are in short supply. That’s pushing up prices and preventing some delays in the manufacturing of autos or other goods.

Read: Economists say inflation risks highest in two decades and could force Fed to raise interest rates in 2022

The big picture:  Manufacturing is not the mainstay of the economy like it once was, but it’s still a powerhouse. The rapid recovery in the industrial side of the economy is helping to lead the recovery and return the U.S. to precrisis growth levels.

See: A visual look at how an unfair pandemic has reshaped work and home

A full recovery, however, still depends on the vaccines being very effective and the coronavirus fading away. Fresh outbreaks in Europe and elsewhere are constraining the global economy and will also put limits on Americans manufacturers.

Market reaction: The Dow Jones Industrial Average
DJIA,
-0.94%

and S&P 500
SPX,
-0.76%

were set to open higher in Wednesday trades.



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