US: Despite the rebound, Q1 business spending still weak - Wells Fargo

Data released today offered upbeat data with the Capital Goods Orders rising 2.7% in March. Analysts at Wells Fargo, point out that core capital goods orders suggest the economy has momentum going into Q2, but core capital goods shipments still suggest weak business spending in tomorrow’s Q1 GDP report. 

Key Quotes: 

“Durable goods orders rose a solid 2.7% in March, and February’s decline was upwardly revised to a drag of 1.1% (-1.6% previously). Recent months have been influenced by the volatile commercial aircraft sector; orders jumped 31.2% in March after declining 25.4% in February. Orders excluding transportation rose a more modest 0.4% over the month.”

“Core capital goods orders—a key leading indicator of future business spending—rose 1.3% in March, suggesting the economy may be carrying momentum into the second quarter. But, the fall in core capital goods shipments (down 0.2%) still suggests a weak outturn for business spending in tomorrow’s first estimate of Q1 GDP.”

“The solid outturn for durable goods orders in March suggests the grounding of the 737 MAX wasn’t a huge factor for March orders.”

“Given Boeing announced on Wednesday that it was withdrawing its forward financial guidance, the timing of the 737 MAX return remains largely uncertain. Under our current assumption, the 737 decreased production stands to reduce Q2 GDP growth by about 0.2 percentage points.”