The Independent Market Observer

Monday Update: Is Business Spending Starting to Slow?

Posted by Sam Millette

This entry was posted on Mar 28, 2022 11:01:17 AM

and tagged In the News

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monday-bFebruary’s preliminary durable goods orders report was the only major economic data release last week. The report showed that durable goods orders fell by more than expected during the month, which could be a sign that business spending is starting to slow. This will be a busier week, with scheduled reports providing updates on consumer and manufacturer confidence, personal income, personal spending, and the March jobs report.

Last Week’s News

On Thursday, the preliminary estimate for the February durable goods orders report was released. It showed that durable goods orders fell 2.2 percent during the month, which was a larger decline than the expected 0.6 percent drop. This larger-than-expected slowdown in headline durable goods orders was primarily due to a notable drop in aircraft orders, though orders for machinery and electronics also fell in February. Core durable goods orders, which strip out the impact of transportation orders, declined 0.6 percent during the month against calls for a 0.6 percent increase. This marks the first monthly fall in core orders in a year and indicates that rising risks may have hampered overall business investment. Business spending was strong throughout most of 2021, as businesses invested in equipment to meet high levels of customer demand. Next month’s report will show whether there was a temporary lull in February business spending or if rising uncertainty will continue to negatively affect investment in 2022.

What to Look Forward To

On Tuesday, the Conference Board Consumer Confidence Index for March is set to be released. Confidence is expected to drop from 110.5 in February to 107 in March. If estimates hold, this would be the third straight month with lowered confidence and would bring the index to its lowest level since February 2021. The previously released University of Michigan consumer sentiment survey showed that rising inflation concerns weighed on consumer sentiment during the month. Confidence is expected to remain well above the pandemic-driven lows we saw in 2020 and early 2021. This should help support continued spending growth this month despite the anticipated index decline. While rising prices may serve as headwinds for consumer confidence in the short run, we may see an uptick in sentiment if inflationary pressure starts to recede later in the year.

On Thursday, the February personal income and personal spending reports will be released, and both are expected to show improvement during the month. Spending is set to increase 0.5 percent following a 2.1 percent increase in January, and income is set to rise 0.5 percent after remaining unchanged in January. If estimates hold, this would mark two consecutive months of spending growth, which would be a positive sign for overall economic growth. Consumer demand proved to be strong in January despite headwinds created by inflation and the pandemic. The continued spending growth in February would be an encouraging sign that consumers remain willing to go out and spend. Income growth has been volatile throughout the pandemic due to shifting federal unemployment and stimulus payments; however, the strong job market is expected to support continued wage growth in the months ahead.

Speaking of the job market, Friday will see the release of the March employment report. Economists expect to see 475,000 jobs added during the month, which would be a decline from the 678,000 jobs that were added in February. If estimates prove to be accurate, this would still represent a strong month of hiring growth on a historical basis. The underlying data is also expected to improve, as the unemployment rate is set to fall from 3.8 percent in February to 3.7 percent in March. Average hourly earnings are expected to increase 0.4 percent during the month. The pre-pandemic low for unemployment was 3.5 percent, and the fact that the unemployment rate is starting to approach this level highlights the impressive labor market recovery over the last two years. Given the improvements for the job market and the rise in inflationary pressure throughout 2021, the Fed is expected to focus on tightening monetary policy throughout 2022 to combat rising prices.

We’ll finish the week with Friday’s release of the ISM Manufacturing index for March. This measure of manufacturing confidence is expected to decline slightly from 58.6 in February to 58.4 in March. This is a diffusion index where values above 50 indicate expansion, so if estimates hold, this report would still point toward continued manufacturing growth during the month. Last month, we saw the positive impact that high levels of manufacturing confidence can have, as manufacturing output increased more than expected in February while confidence remained high. Manufacturing confidence has been supported by high levels of demand for manufactured goods over the past year, but rising material and labor costs have served as headwinds for the industry. Looking forward, continued demand for manufactured goods is expected to support manufacturing confidence and output in the months ahead.

That’s it for this week—thanks for reading!

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