Tariff-related price inflation may be driving up dollar totals in the factory sector which, based on the April advance durable goods report, has gotten off to a very strong start for the second quarter. Forget the 1.7 percent headline decline in the month, one due entirely to an understandable swing lower for what have been very strong aircraft orders. Excluding aircraft and other transportation equipment, durable goods orders rose 0.9 percent to beat Econoday's consensus by 3 tenths.
Orders for primary metals, where tariffs on steel and aluminum are in effect, jumped 1.3 percent in April on top of March's giant 4.6 percent surge when tariffs first took effect. Orders for fabricated metals, also affected by tariffs, rose 2.0 percent following March's 1.2 percent gain. These two components make up more than 20 percent of total durable orders.
Elsewhere, capital goods put in a very strong April showing in what is very auspicious news for second-quarter business investment. Core orders, which exclude aircraft, rose 1.0 percent with core shipments, which are direct inputs into fixed nonresidential investment, up 0.8 percent.
Civilian aircraft orders fell by 36.2 percent but follow March's 71.7 percent climb. And defense aircraft helped narrow the difference, rising 7.5 percent in the month. Vehicle orders also opened up the second-quarter on a strong note with a 1.8 percent gain.
The factory sector, as has been indicated by the regional reports, is picking up steam and, showing no immediate negatives and possibly positives from tariffs, looks to be an increasing contributor to the 2018 economy. Other details include a third straight strong rise in unfilled orders, up 0.5 percent in April, and a useful 0.3 percent build for inventories.
Underlying strength is the call for durable goods orders which, however, is not expected to be evident at the headline level where a 1.2 percent decline is Econoday's consensus, one reflecting expectations that aircraft orders, which have been very strong, will finally pull back. Ex-transportation orders, which exclude aircraft, were flat in March and solid improvement is the call for April, at a consensus gain of 0.6 percent. A decline in core capital goods was a disappointment in the March report and a 0.7 percent rebound is the April consensus.