Business spending on equipment falls more than expected
REAL ECONOMY BLOG | April 26, 2023
Authored by RSM US LLP
Orders and shipments of core capital goods that exclude defense and aircraft spending, a key measure of private business investment, both fell by 0.4% in March, the Commerce Department reported on Wednesday.
It is now clear that the nonresidential component of private investment has caught up with the residential component, showing more cracks under the pressure of steep interest rate hikes over the past year.
Together with new data on trade and inventories that showed a narrowing trade deficit, the core capital goods figures helped push our forecast for gross domestic product growth in the first quarter down slightly, to 2.2% from 2.3%.
Both the orders and shipments categories of core capital goods came in lower than market forecasts. In addition, February’s numbers had sharp downward revisions, plunging to a 0.7% decline for core orders and a 0.4% drop for core shipments from the initial estimates of a 0.1% decline for both.
Given the many announcements for layoffs and hiring freezes recently in addition to slowing demand, businesses have been cutting costs in preparation for a potential economic downturn.
Core capital orders and shipments have dropped four times in five months, pushing the three-month annualized moving averages to a 1.2% decline for core orders and a 0.1% increase for core shipments.
It is impossible to ignore the downward trend in capital expenditures by businesses as a result of higher borrowing costs and the risks around the banking system, which in our view should be one of the key factors that tip the economy toward a recession in the second half of the year.
Risks to GDP growth
Wednesday’s data on core capital goods, which feed directly into the calculation of nonresidential private investment, should add downside risks to our previous forecast of a 2.3% increase in gross domestic product in the first quarter. The government’s initial estimate of GDP for the first quarter will be released on Thursday.
Some of the decline in capital goods orders and shipments was offset by the upside surprises from the advanced goods trade deficit, which came in at $84.6 billion instead of $90 billion.
Our GDP forecast is now showing 2.2% growth for the first quarter, driven by solid consumer spending and exports.
Call us at (800) 624-2400 or fill out the form below and we'll contact you to discuss your specific situation.
This article was written by Tuan Nguyen and originally appeared on 2023-04-26.
2022 RSM US LLP. All rights reserved.
RSM US Alliance provides its members with access to resources of RSM US LLP. RSM US Alliance member firms are separate and independent businesses and legal entities that are responsible for their own acts and omissions, and each is separate and independent from RSM US LLP. RSM US LLP is the U.S. member firm of RSM International, a global network of independent audit, tax, and consulting firms. Members of RSM US Alliance have access to RSM International resources through RSM US LLP but are not member firms of RSM International. Visit rsmus.com/about us for more information regarding RSM US LLP and RSM International. The RSM logo is used under license by RSM US LLP. RSM US Alliance products and services are proprietary to RSM US LLP.
Weinlander Fitzhugh is a proud member of the RSM US Alliance, a premier affiliation of independent accounting and consulting firms in the United States. RSM US Alliance provides our firm with access to resources of RSM US LLP, the leading provider of audit, tax and consulting services focused on the middle market. RSM US LLP is a licensed CPA firm and the U.S. member of RSM International, a global network of independent audit, tax and consulting firms with more than 43,000 people in over 120 countries.
Our membership in RSM US Alliance has elevated our capabilities in the marketplace, helping to differentiate our firm from the competition while allowing us to maintain our independence and entrepreneurial culture. We have access to a valuable peer network of like-sized firms as well as a broad range of tools, expertise and technical resources.
For more information on how Weinlander Fitzhugh can assist you, please call (989) 893-5577.