Durable goods orders dropped 14.4% in March from February, the largest drop since August 2014 and the second largest drop in history. The drop in 2014 was merely a correction to a surge the month prior, while losses in March compound the weakness we have seen in durable goods orders over the last year. The gain for February was revised slightly lower.
A downdraft in transportation equipment accounted for much of the weakness. Aircraft orders plummeted nearly 300% between February and March as cancellations and curbs on international travel brought the airline industry to its knees. It seems like ages ago that the only problem in the production of aircraft was the grounding of Boeing’s 737 Max. Gains in defense aircraft and parts were not enough to offset those losses. Motor vehicles and parts were also hit hard in March with an 18.4% drop in orders. Vehicle dealers and plants were forced to close after state shelter-in-place orders went into effect, starting on March 19 with California.
Core durable goods (ex-aircraft and defense), which more closely track plans for investment, held up better. They rose 0.1% during the month. That follows a decline in February and provides little solace given the flurry of manufacturing surveys that have plummeted to record lows since the March durable goods survey was taken.
Core shipments fell 0.2% in March after losing ground in February. Investment for the first quarter is expected to remain in the red. This will mark the fourth consecutive quarter of contraction in investment. The losses in investment started with trade wars and will only worsen in the second quarter due to COVID closings. The blow to productivity growth and our growth potential is expected to be to the downside.
The recession triggered by COVID-19 is abrupt, deep and global in scope. Those looking for a quick snapback are overlooking hurdles to a comeback especially in investment, which will be further complicated by the uneven pace different regions and different countries open. Disruptions to supply chains will be particularly large at the same time that demand remains suppressed. The key is to not lose too many suppliers; that would trigger shortages down the road.
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