Economic Report: U.S. business investment falls for the first time in a year. A slowing economy?

United States

The numbers: Orders at U.S. factories for long-lasting goods fell 2.2% in February and business investment fell for the first time in a year, suggesting high inflation and ongoing supply shortages are tapping the brakes on a rapid economic recovery.

Orders for U.S durable goods — products meant to last at least three years — shrank for the first time in five months, the government said Thursday.

Economists polled by the Wall Street Journal had forecast 1% decline.

The dropoff was concentrated in passenger planes and autos, two volatile categories that can swing sharply from one month to the next.

Yet bookings were soft in every major category except for computers.

A more accurate measure of demand, known as core orders, slipped 0.3% in the month. The core number strips out transportation and military hardware. It was first decline in 12 months.

Big picture: Businesses still have plenty of demand for big-ticket items despite high inflation and disruptions caused by the Russian invasion of Ukraine. Orders for durable goods have climbed 10% over the past year.

Headwinds are growing, however.

The conflict in Ukraine could tax already strained global supply chains, as could a coronavirus outbreak in China. At home, the Federal Reserve is moving to raise interest rates to try to bring down high inflation. That will raise the cost of investment.

Economists predict U.S. growth will slow this year, but keep expanding at a steady pace.

Key details: Bookings for new commercial airplanes tumbled 30% in February and accounted for most of the decline in the headline number. Boeing BA, -2.62% reported half as many orders last month as the large jetmaker did in January.

Orders for expensive airplanes tend to be lumpy from month to month, however, and are not the best gauge of how Americans manufacturers are doing.

Automobile makers also reported a 0.5% decrease in new orders.

Americans still crave new cars even as gas prices and interest rates rise, but General Motors GM, -1.75%, Ford F, -2.40% and others can’t produce enough vehicles because of a lingering shortage of computer chips.

New orders were also soft outside transportation. Bookings fell for industrial metals, metal parts, electronics and networking gear.

The only category to post sizable increases were computers and defense.

The decline in so-called core orders, a measure of business investment, was the first since February 2021. These orders are viewed by investors as a signal of future business prospects.

Business investment has increased a robust 11% in the past year, however, and there’s little evidence that companies are sharply cutting back.

Looking ahead: “Businesses may be more vigilant as recent events exacerbate logistics constraints and add upward pressure to prices, but they’re unlikely to pull back significantly on investment,” said lead U.S. economist Oren Klatckin of Oxford Economics.

“Looking past the month-to-month noise, we continue to see steady, solid growth,” said Stephen Stanley, chief economist at Amherst Pierpont Securities.

Market reaction: The Dow Jones Industrial Average DJIA, -1.29% and S&P 500 SPX, -1.23% were set to open modestly higher in Thursday trades.