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U.S. Durable Goods Orders Show Sharp Pullback In March

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In another troubling sign for the U.S. manufacturing sector, the Commerce Department released a report on Wednesday showing a much bigger than expected drop in new orders for manufactured durable goods in the month of March.

The report showed that durable goods orders tumbled by 5.7 percent in March following a revised 4.3 percent increase in February.

Economists had expected orders to drop by 2.8 percent compared to the 5.6 percent increase that had been reported for the previous month.

The bigger than expected decrease in durable goods orders in March was partly due to a 15.0 percent drop in orders for transportation equipment, which pulled back after jumping by 20.0 percent in February.

Orders for commercial aircraft and parts plunged by 48.2 percent in March after surging up by 86.4 percent in February, as aerospace giant Boeing (BA) took orders for just 39 aircraft compared to an unusually high 179 in the previous month.

Excluding the sharp drop in orders for transportation equipment, however, durable goods orders still fell by 1.4 percent in March compared to a 1.7 percent drop in February.

Notable decreases in orders for primary metals, machinery, and electrical equipment contributed to the drop in ex-transportation orders.

Meanwhile, the Commerce Department also said orders for non-defense capital goods excluding aircraft, which are seen as a good indicator of future business spending, edged up by 0.2 percent in March after falling by 4.8 percent in February.

For the first quarter as a whole, orders for non-defense capital goods excluding aircraft increased at an annualized rate of 16.7 percent compared to fourth quarter growth of more than 20 percent.

Jennifer Lee, senior economist at BMO Capital, said, "So, momentum moderated a bit but was still decent, flagging stronger growth ahead."

Lee noted that shipments of non-defense capital goods, which are a good indicator of current capital spending, jumped 2.1 percent in March but fell 1.6 percent in the first quarter after rising 7.1 percent in the fourth quarter.

"This suggests that Friday's Q1 GDP report will show a marked slowing in the capital spending component from Q4's pace," she said.

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