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Demand for Durables Drifts Lower

RFP
Orders for durable goods tumbled 1.3% in April. That follows 11 consecutive months of growth, including upward revisions to February and March data.

Supply bottlenecks and chip shortages held up vehicles and parts, electrical equipment and appliances, driving the biggest losses. As consumers begin to shift back to services from goods, we could see some of the back orders canceled if suppliers cannot get the products out more quickly.

Nondefense aircraft orders surged 17.4% in April but lag pre-pandemic levels. Domestic air travel is expected to rebound this summer as resorts and hotels expand the number of rooms available. We do not expect to see business travel recover until 2022, and not to its pre-pandemic level. A slower pace of vaccinations abroad is likely to hamper international travel this year and next.

Defense orders fell 25.8% last month, the largest drop since January of 2020. Fewer military aircraft orders contributed to that decline.

Core capital goods orders, which strip out aircraft and defense orders and reflect investment plans, climbed 2.3% in April, the strongest pace in eight months, following an upward revision to March. Orders for computers, metals and machinery helped even as vehicle and appliances orders weakened. A housing market boom has contributed to shortages and price spikes for everything from appliances to raw materials like lumber.

Core shipments rose 0.9% in April. Upward revisions to March data suggest that business investment (which contributes to the overall GDP calculation) was more robust in the first quarter, with the second quarter off to a good start.

Bottom Line
Unfilled orders for all goods rose for a second consecutive month. Inventories for in-demand products remained tight. Overall, we expect to see durable goods orders rebound later during this quarter as bottlenecks dissipate and backlogs decline.

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