US Core Capital Goods Orders Crash: A Warning for Business Investment and How to Navigate the Fallout

The April 2025 drop in US core capital goods orders—plunging 1.3%—is no mere statistical blip. This decline marks a critical turning point in the US manufacturing sector, signaling a broader retreat in business investment as trade and tax policy uncertainty stifles corporate confidence. For investors, this data is a clarion call: the era of aggressive capital expenditure (capex) is waning, and portfolios must pivot to sectors insulated from this volatility.

The Anatomy of the Decline: Trade Wars and the End of Pre-Tariff Buying

The data reveals two key drivers behind the collapse:
1. Policy Uncertainty: President Trump's inconsistent trade policies—threatening tariffs on EU goods, delaying Chinese duties, and targeting tech imports—have created a climate of fear. Businesses are now delaying capex decisions until clarity emerges.
2. Waning Pre-Tariff Front-Running: In Q1 2025, companies accelerated purchases to avoid impending tariffs, inflating orders artificially. April's data shows this demand has evaporated, with sectors like information processing equipment suffering a sharp slowdown.

The trade deficit's surge to $140.5 billion in March underscores the imbalance: imports are rising faster than exports, squeezing domestic manufacturers and amplifying cost pressures.

Durable Goods Volatility vs Core Capital Weakness: A Sectoral Divide

While the headline decline in core capital goods is stark, the data's nuance is critical:
- Durable Goods Volatility: Commercial aircraft orders collapsed—from 192 in March to just 8 in April—a reminder that sectors like aerospace are uniquely sensitive to trade disputes.
- Core Capital Goods Softness: Shipments fell 0.1%, and unfilled orders barely budged, suggesting businesses are not merely delaying purchases but canceling them outright.

This chart highlights the trend: orders have now dipped below pre-pandemic levels, with no rebound in sight.

GDP Implications: The Capex Drag Is Here

The April data directly feeds into the Q1 GDP contraction of 0.3%, as businesses scaled back investments. But the true threat lies ahead:
- Inventory and Unfilled Orders: While inventories rose slightly, unfilled orders are stagnant, indicating no pent-up demand to offset declining orders.
- Trade's Double Whammy: Imports (a GDP subtraction) are rising due to supply chain disruptions, compounding the capex slowdown.

Stephen Stanley of Santander notes this is “a self-fulfilling prophecy—businesses are waiting for clarity, but clarity isn't coming.” Investors should brace for further GDP weakness unless policy stability emerges.

Actionable Investment Strategies: Seek Sectors That Thrive Amid Capex Volatility

The silver lining? Not all sectors are equally exposed. Here's where to position:

1. Healthcare: Steady as She Goes

Healthcare's focus on R&D and regulated spending makes it less reliant on cyclical capex.

Pharma and biotech stocks, in particular, have held up despite broader market weakness.

2. Tech R&D: The New Safe Haven

While communications equipment orders fell 2.6%, sectors tied to semiconductors and AI-driven innovation remain resilient.

Invest in firms where R&D spending is a competitive moat, not a capex burden.

3. Defensive Equities: Utilities and Consumer Staples

These sectors offer insulation from trade disputes. Utilities, in particular, benefit from low interest rates and stable demand.

4. Contrarian Plays in Aerospace: Wait for the Bottom

While aerospace orders cratered in April, the sector could rebound if trade tensions ease. Monitor Boeing's order pipeline and China-US relations.

Conclusion: Pivot Now or Pay Later

The April capital goods data isn't just a warning—it's a roadmap. Investors ignoring it risk overexposure to sectors betting on a capex rebound that may never come. The smart move is to shift toward healthcare, tech R&D, and defensive equities. This is no time for passive holding; it's a moment to reposition for resilience in an uncertain world.

The writing is on the wall: trade wars are killing business investment. The question is—will you be on the right side of the trade?

This final chart tells the tale: non-capex sectors have outperformed by 12% year-to-date. The trend is clear—follow the money, and avoid the fallout.