New orders for core capital goods unexpectedly dropped in April, snapping two months of gains and signaling that business investment is losing steam even as AI spending props up parts of the factory sector.
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US core capital goods orders fall 1.1% as manufacturing momentum stalls
The 1.1% decline in non-defense capital goods orders excluding aircraft missed the consensus forecast for a 0.4% gain, the Commerce Department said Thursday, after an upwardly revised 3.9% surge in March.
"Capital goods orders are the canary in the coal mine for business confidence, and this reversal suggests companies are pulling back on long-term commitments as trade policy uncertainty and supply-chain disruptions mount," said James Okafor, macro analyst at Edgen.
The broader durable goods picture was mixed. Total orders for long-lasting goods jumped 7.9% to $346 billion in April, beating the 3.5% consensus estimate, but the headline was inflated by a 165.9% surge in non-defense aircraft orders — Boeing received 136 orders in April versus 33 in March. Excluding transportation, durable goods orders rose a more modest 1.1%. Core capital goods shipments, a proxy for current business spending, edged up 0.4% after a 1.3% gain in March.
The data complicates the outlook for second-quarter GDP, where business equipment investment had been tracking at a double-digit annualized pace after a strong first quarter. With the Federal Reserve holding rates in a 3.50%-3.75% range and some policymakers open to further tightening, a sustained pullback in capital spending could weigh on growth just as the economy contends with elevated inflation — the PCE price index hit 3.8% in April, its fastest pace in three years.
Orders for computers and electronic products fell 0.7% in April, though that was partially offset by gains in electrical equipment, appliances, machinery, primary metals and fabricated metal products. The AI investment boom continues to underpin demand for information processing equipment, helping to limit the damage from broader headwinds.
Supply Chains Under Pressure
The manufacturing sector is navigating multiple disruptions. The U.S.-backed war with Iran has snarled supply chains and driven up commodity prices, with oil and aluminum costs surging. Containerized imports to the U.S. fell for a 12th consecutive month in April, down 5.2% year over year to roughly 2.635 million TEUs, according to S&P Global Market Intelligence. Capital goods imports alone dropped 28.9% annually, while metals imports fell 12.9%.
The last time core capital goods orders posted a monthly decline of this magnitude was in October 2025, when orders fell 0.8% amid the initial shock of tariff escalations. In the three months following that drop, manufacturing payrolls added an average of just 8,000 jobs per month, compared with 22,000 in the prior three-month period, Bureau of Labor Statistics data show.
The April data raises the stakes for the May and June readings, which will determine whether the pullback is a one-month blip or the start of a broader deceleration. The Atlanta Fed's GDPNow model will incorporate the capital goods data in its next update, and economists will watch the Institute for Supply Management's manufacturing PMI, due June 2, for further signals on factory activity.
This article is for informational purposes only and does not constitute investment advice.
