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March 26, 2025

February durable goods orders rose 0.9%, a stronger outcome relative to the market consensus of -1%. January durable goods orders were little revised to show a 3.3% increase.

Transportation orders notched a gain of 1.5%, aided by a sizable jump in orders for vehicles and parts. Those orders rose 4%, the strongest rise in about three years. The motor vehicle industry saw a front-running of orders before tariffs on steel and aluminum took effect. According to industry estimates, the price of a new vehicle will see increases in the range of several thousand dollars to as high as $10,000 or more due to tariffs. The upper estimate would represent a 20% increase given that the average transaction price for a new vehicle is about $48,500. Consumers are already reeling from elevated inflation. Talk about sticker shock.

Orders for nondefense aircraft declined 5% in February, consistent with the drop in orders for Boeing aircraft to 13 planes from 36 in January. Ex-transportation, durable goods orders rose 0.7%.

Primary metals orders and fabricated metals orders experienced solid gains, up 1.2% and 0.9%, respectively. Those orders were also boosted before 25% tariffs on imported metals took effect.

Elsewhere, orders for computer and electronics were unchanged and machinery orders were little changed (up 0.2%).

Core shipments rose 0.9% after a 0.2% drop in January. These data feed into the calculation of business fixed investment and is consistent with our forecast of a 2.9% annualized increase in the first quarter and 1% rise in real GDP.

Orders for nondefense capital goods excluding aircraft, a proxy for business spending, fell 0.3%. This is the largest decline in seven months. The drop could be an early indication that business leaders are pulling back on future capital spending due to the uncertain tariff environment. The S&P Global manufacturing purchasing managers' index (PMI) flash estimate for March fell into contractionary territory. The PMI fell to 49.8 from 52.7 in February. A below 50 result signals that manufacturing activity is declining. 

There’s a very good reason why February orders showed strength - manufacturers decided to pull forward orders before tariffs became effective. In this post-tariff environment, in terms of what has already been announced, the outlook is not so sanguine. Consumer confidence is plummeting and elevated policy uncertainty is likely to weigh on business spending plans in 2025. This is consistent with our forecast of a mild bout of stagflation this year.