U.S. Business Investment Cools; Labor Market Remains Strong

New orders for key U.S.-made capital goods dropped in March, pulled down by the biggest decline in demand for machinery in almost two years, and a fall in shipments implies that business spending on equipment cooled in the first quarter.

Separate data recently showed that the economy remains strong. The number of Americans filing for unemployment benefits dropped to the lowest level in over 48 years last week and the goods trade deficit narrowed sharply in March amid strong export growth.

According to the Commerce Department, orders for nondefense capital goods excluding aircraft, a closely watched proxy for business spending plans, fell 0.1 percent in March. Data for February was revised to show these so-called core capital goods rising 0.9 percent instead of the initially posted 1.4 percent jump.

In March, orders for machinery dropped 1.7 percent, the biggest decline since April 2016, after a gain of 0.3 percent in February. There were, however, increases in orders of primary metals, computers and electronic products, fabricated metals and electrical equipment, appliances and components.

Overall orders for durable goods, items ranging from toasters to aircraft that are meant to last three years or more, rose 2.6 percent in March as demand for transportation equipment rose 7.6 percent. That followed a 3.5 percent surge in durable goods orders in February.

Business spending on equipment likely cooled in the first quarter after double-digit growth in the second half of 2017. The moderation in investment in equipment is expected to have combined with a sharp slowdown in consumer spending to restrain economic growth in the first quarter.

Gross domestic product is likely to come in at 2 percent or less in the first quarter.

Nonetheless, signs are emerging that growth is likely to speed up in the spring, with GDP perhaps returns close to 3%. Companies are raising production and hiring at a rapid clip despite the lowest jobless rate since 2000. The rate of layoffs in April fell to the lowest level since 1969.

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