US durable goods orders drop 1.7% in April, but core capital goods orders rose as shipments rebounded

New orders for key U.S.-made capital goods increased more than expected in April and shipments rebounded, suggesting business spending on equipment was picking up after slowing down at the end of the first quarter.

The Commerce Department said on Friday that orders for non-defense capital goods excluding aircraft, a closely watched proxy for business spending plans, jumped 1.0 percent last month. The increase in the so-called core capital goods orders reversed March’s 0.9 percent drop.

Economists polled by Reuters had forecast core capital goods orders rising 0.7 percent last month. Core capital goods orders increased 6.6 percent on a year-on-year basis.

Shipments of core capital goods rose 0.8 percent last month after falling 0.7 percent in March. Core capital goods shipments are used to calculate equipment spending in the government’s gross domestic product measurement.

Business spending is being supported by the Trump administration’s $1.5 trillion income tax cut package, which came into effect in January. The government slashed the corporate tax rate to 21 percent from 35 percent. A strong economy and rising oil prices are also underpinning investment.

Business spending on equipment slowed in the first quarter after double-digit growth in the second half of 2017.

Last month, orders for electrical equipment, appliances and components increased 2.6 percent after rising 2.4 percent in March. Orders for computers and electronic products gained 1.1 percent while those for fabricated metals jumped 2.0 percent. There were also increases in orders for primary metals.

But orders for machinery fell 0.8 percent after decreasing 3.2 percent in March.

Overall orders for durable goods, items ranging from toasters to aircraft that are meant to last three years or more, dropped 1.7 percent in April as demand for transportation equipment tumbled 6.1 percent. That followed a 2.7 percent increase in durable goods orders in March.

Boeing reported on its website that it received only 78 aircraft orders in April compared to 197 in March.

Orders for motor vehicles and parts rose 1.8 percent last month after advancing 0.6 percent in March.