Front-loading ahead of tariffs boosts US durable goods orders

By Lucia Mutikani

WASHINGTON (Reuters) -Orders for long-lasting U.S. manufactured goods unexpectedly rose in February as businesses rushed to avoid potential price increases from tariffs, likely boosting capital expenditure in the first quarter.

But the report from the Commerce Department on Wednesday did not change economists' expectations that economic growth was slowing considerably in the first quarter as businesses and households grapple with a fluid import duty environment.

President Donald Trump has announced a blizzard of tariff actions since taking office in January. Economists have warned that the manner in which the tariffs are being handled was not supportive of economic activity. 

"There is tremendous uncertainty coming from Washington, but companies are not just holding their breath waiting for the other tariff shoe to drop, they are actively ordering up more equipment to beat the price increases once the trade war sanctions jack up the cost of the goods and materials they need to even higher levels," said Christopher Rupkey, chief economist at FWDBONDS.

Orders for durable goods, items ranging from toasters to aircraft meant to last three years or more, increased 0.9% after advancing by an upwardly revised 3.3% in January, the Commerce Department's Census Bureau said. Economists polled by Reuters had forecast durable goods orders would fall 1.0%.

Primary metals orders rose 1.2%, while those for fabricated metal products rebounded 0.9%. Electrical equipment, appliances and components orders jumped 2.0%. 

Economists attributed the rise in orders for these goods to front-loading ahead of tariffs, adding that trade policy uncertainty and higher borrowing costs remained constraints for manufacturing, which accounts for 10.3% of the economy.

Trump has imposed a new 20% duty on all imports from China and 25% on goods from Canada and Mexico that are not compliant with a North American trade agreement.

The U.S. president has fully restored 25% tariffs on steel and aluminum from Canada, Mexico, EU and other countries, and next week is set to announce higher U.S. "reciprocal tariffs" to match the duty rates of trading partners and offset non-tariff barriers. Trump also has said that he will soon impose sectoral tariffs on imported autos, semiconductors and pharmaceuticals.

"The demand data show conditions are not fueling a broad and sustained recovery in capex spending," said Shannon Grein, an economist at Wells Fargo. "Small business intentions around capital spending remain historically low as many businesses, like the Fed, are sitting and waiting for clarity."

BUSINESS SENTIMENT DETERIORATING

The Federal Reserve last week left interest rates unchanged, an acknowledgement of the uncertainty swirling around the economy. Optimism among company chief financial officers dropped in the first quarter of 2025, a survey from two regional Fed banks and Duke University showed on Wednesday.

Stocks on Wall Street were mixed. The dollar advanced against a basket of currencies. U.S. Treasury yields rose.

Orders for machinery climbed 0.2% last month while those for transportation equipment increased 1.5%. They were lifted by a 4.0% rebound in demand for motor vehicles and parts and a 9.3% rise in defense aircraft and parts orders, more than offsetting a 5.0% decline in commercial aircraft orders. 

Boeing reported on its website that it had received only 13 aircraft orders in February compared to 36 in January. 

Non-defense capital goods orders excluding aircraft, a closely watched proxy for business spending plans, dropped 0.3% after an upwardly revised 0.9% surge in January. Economists had forecast these so-called core capital goods orders would gain 0.2% after a previously reported 0.8% jump in January. 

Shipments of core capital goods rebounded 0.9%, the most in a year, after falling 0.2% in January. 

Non-defense capital goods orders declined 1.5% after accelerating 12.8% in January. Shipments of these goods rose 0.5% after vaulting 3.2% in the prior month. 

Core and non-defense capital goods shipments go into the calculation of the business spending on equipment component in the gross domestic product report. The rise in shipments suggested a rebound in business spending on equipment this quarter after a contraction in the fourth quarter.

But the decline in orders pointed to weakness in equipment investment beyond the first quarter. Economists at Goldman Sachs left their GDP growth estimate for the first quarter unchanged at a 1.3% annualized rate.

The Atlanta Fed is expecting GDP to contract in the January-March period. The economy grew at a 2.3% pace in the fourth quarter.

"Business sentiment is down and still falling, suggesting less capital spending lies ahead," said Carl Weinberg, chief economist at High Frequency Economics.

(Reporting by Lucia Mutikani; additional reporting by David Lawder; Editing by Chizu Nomiyama and Paul Simao)