Durable goods orders suffer worst drop in three years

Businesses slashed spending on machinery and equipment in January after a tax break expired, pushing orders for long-lasting manufacturing goods down by the largest amount in three years.

Orders for durable goods fell 4 percent last month, the Commerce Department said Tuesday.

A big reason for the decline was demand for so-called core capital goods, which are viewed as a good measure of business investment plans, tumbled 4.5 percent. That’s the biggest drop in a year.

Economists attributed much of the decline in January to the end of the tax credit. They noted that demand for core capital goods hit an all-time high in December as most companies raced to qualify for the tax credit. Many said the underlying trend remained strong and predicted further business investment in the coming months.

“We see no evidence of underlying slowing in the industrial economy, so we look for a rebound in February and the re-emergence of the upward trend over the next couple of months,” said Ian Shepherdson, chief economist at High Frequency Economics.

A durable good is a product expected to last at least three years. They include everything from appliances and cars to heavy machinery and planes. Orders tend to fluctuate sharply from one month to the next. But the overall trend in orders has increased since the recession ended nearly three years ago.

In January, overall orders totaled $206.1 billion. That’s 38.6 percent above the low hit during the recession. Orders are still 16 percent below their peak hit in December 2007.

U.S. factories boosted output last month, and December ended up being their best month of growth in five years. Strong auto sales and growing business investment in machinery and other equipment are keeping factories busy and helping the economy grow.

About 9 percent of the nation’s jobs are in manufacturing. Bu,t last year, factories added 13 percent of new jobs. And, in January, about one-fifth of the 243,000 net jobs the economy created were in manufacturing.

The economy grew at an annual rate of 2.8 percent in the final three months of last year. Economists are looking for roughly the same level of growth in the current quarter. And a forecasting panel of the National Association for Business Economics said Monday that the economy should grow 2.3 percent this year.

Demand in many durable goods categories showed declines in January. Orders for commercial aircraft, a volatile category, fell 19 percent after two months of big gains. Orders for motor vehicles and parts edged up 0.9 percent. The overall transportation category posted a 6.1-percent decline while orders outside of transportation were down 3.2 percent.

Other areas showing weakness were primary metals such as steel, down 6.7 percent, and machinery, which fell 10.4 percent. Orders for computers and related products were down 10.1 percent.