Gains in Durable Goods and the Service Sector: February 27 – March 3

Core durable goods orders grew in January. Here are the five things we learned from U.S. economic data released during the week ending March 3.

Aircraft orders fell, but other durable goods orders soared in January. The Census Bureau estimates new orders for durable manufactured goods slumped 4.5 percent to a seasonally adjusted $272.3 billion. Transportation goods orders dropped 13.3 percent, reflecting a 54.6 percent decline for civilian aircraft. Core durable goods orders grew 0.7 percent, boosted by gains for machinery, computers/electronics, and primary metals. Orders for civilian nonaircaft capital goods advanced 0.8 percent. Durable goods shipment slowed 0.1 percent to $277.3, with core durable goods shipments gaining 0.7 percent. Unfilled orders held steady at $1.157 trillion and inventories shrank 0.1 percent to $493.1 billion.

Purchasing managers continue to report weakness in manufacturing in February. The Manufacturing PMI eked out a 3/10^ths of point gain to 47.7. The Institute for Supply Management measure has failed to top 50.0—the threshold between a going and contracting manufacturing sector—for four straight months. While the new orders index component added 4.5 points to a (still) contracting 47.0, measures fell for production, employment, and inventories. Four manufacturing industries expanded in February: apparel, transportation, petroleum/coal, and electrical equipment/appliances. Included among the declining industries were printing, paper, and wood products.

The service sector, meanwhile, held firm. The Services PMI slipped 1/10^th of a point in February to 55.1. The index has been above 50.0 for two straight months. Whereas the business activity/production measure slumped 4.1 points to 56.3, indices for new orders (62.6), employment (54.0), and inventories (50.6) improved. Thirteen of 18 tracked service sector industries reported growth, led by agriculture, public administration, and construction. The Institute for Supply Management’s press release said that survey “respondents indicated that they post mostly positive business conditions.”

Consumer’s future outlook wobbled in February. The Conference Board’s Consumer Confidence Index lost 3.1 points to a seasonally adjusted 102.9 (1985=100). A year earlier, the index was at 110.5. The current conditions index inched up 1.7 points to 152.8, while the expectations measure shed 6.3 points to 69.7. The latter has been below 80—which the Conference Board says “often signals a recession within the next year”—for 11 of the past 12. Survey respondents expect prices to rise 6.3 percent over the next 12 months and indicated slowdowns in home and auto purchases or vacation plans.

Home purchase contract signings grow for a second consecutive month. The National Association of Realtors’Pending Home Sales Index (PHS) rose 8.1 percent in January to a seasonally adjusted 82.5 (2001=100). The index, which measures signed home purchase contracts that have not closed, has not been this high since last August. The PHS gained in all four Census regions, including a 10.1% gain in the West. Despite recent improvements, the PHS remained 24.1 percent below year-ago levels, with sizable negative comparables in all four Census regions. NAR anticipates the housing market will be “bottoming out” during Q1.

Other U.S. economic data released over the past week:

• Jobless Claims (Week ending February 25, 2023, First-Time Claims, seasonally adjusted): 190,000, -2,000 vs. the previous week, +8,000 vs. the same week a year earlier). 4-week moving average: 193,000 (-1.0% vs. the same week a year earlier). 
• Construction Spending (January 2023, Value of Construction Put in Place, seasonally adjusted annualized rate): $1.826 trillion (-0.1% vs. December 2022; +5.7% vs. January 2022).
• Vehicle Sales (February 2023, Light Trucks and Automobiles, seasonally adjusted annualized rate): 14.886 million (-6.2% vs. January 2023; +8.5% vs. February 2022). 
• Productivity (2022Q4-Revised, Nonfarm Business Labor Productivity, seasonally adjusted annualized rate): +1.7% vs. 2022Q3; -1.8% vs. 2021Q4.
• FHFA House Price Index (December 2022, Purchase-Only Index, seasonally adjusted): -0.1% vs. November 2022; +6.6% vs. December 2021).
• S&P Case-Shiller Home Price Index (December 2022, National Index, seasonally adjusted): -0.3% vs. November 2022; +5.8% vs. December 2021.
  Agricultural Prices (January 2023, Prices Received by Farmers, not seasonally adjusted): -9.7% vs. December 2022; +11.4% vs. January 2022.

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