Durable goods orders snap back in March and so does U.S. business investment

The numbers: Orders at U.S. factories for long-lasting goods such as computers and cars rose 0.8% in March and business investment rebounded after the first decline in a year, signaling the economy is still growing at a steady pace.

The increase matched the estimate of economists polled by the Wall Street Journal.

Orders for U.S durable goods — products meant to last at least three years — advanced for the sixth time in the last seven months.

What’s more, the initially reported 2.2% decline in February was revised to show a smaller 1.7% drop, the government said Tuesday.

Another measure of factory conditions, known as core orders, advanced 1% in the month. The core number strips out transportation and military equipment and gives a better sense of underlying demand in the U.S. economy.

These orders fell in February for the first time in a year, so the rebound is encouraging. They are viewed by investors as a signal of future business prospects.

Big picture: Factories are pumping out huge amounts of goods and would produce even more if they could hire more workers and get supplies on time. Shortages of both labor and materials have dogged them for the past year and contributed to the worst U.S. inflation in four decades.

The Federal Reserves plans to raise interest rates rapidly over the next year to try to curb inflation, but it runs the risk of reducing demand too much and triggering a recession.

Most economists don’t think a downturn is imminent or inevitable, however.

Key details: Orders rose in March for every major industrial category except passenger aircraft and defense.

Orders for new commercial planes sank 10%, but they tend to be lumpy from month to month and are not the best gauge of how Americans manufacturers are doing.

Automakers, on the other hand, reported a 5% increase in new orders. Carmakers have struggled to boost production owing to ongoing shortages of key parts, so the increase suggests the problems might be easing.

New orders rose a stronger 1.1% outside transportation.

The increase in so-called core orders, a measure of business investment, was the most positive sign. Business investment has increased 10% in the past year and there’s little evidence that companies are sharply cutting back.

Looking ahead: “The solid increase in core orders suggests that businesses remain in good shape, and are still looking to bulk up its machines and equipment to contribute to their bottom lines,” said senior economist Jennifer Lee of BMO Capital Markets.

“The early April business surveys are consistent with that rapid growth continuing into the beginning of the second quarter,” said senior U.S. economist Michael Pearce of Capital Economics.

Market reaction: The Dow Jones Industrial Average
and S&P 500
were set to open lower in Tuesday trades.