US Core Capital Goods Orders Plunge in February: What It Means for the Economy

The unexpected drop in U.S. core capital goods orders in February 2025 has sent shockwaves through the economic landscape. After nine consecutive months of increases, these orders fell by 0.8%, signaling a potential slowdown in business spending on equipment. This decline is particularly concerning given that core capital goods orders are a key indicator of business investment plans. The drop was partly attributed to the cold snap in January, which disrupted various economic activities, including retail sales, factory production, homebuilding, and house sales. Despite this weather-related decline, economists remain optimistic about a sharp rebound in March, buoyed by the massive fiscal stimulus from the White House’s $1.9 trillion COVID-19 pandemic rescue package. The economy is forecast to grow by as much as a 7.5% annualized rate in the first quarter, after expanding at a 4.1% pace in the final three months of 2020. However, the overall economic sentiment remains cautious, with higher borrowing costs and tighter lending standards following recent financial markets turmoil, which could make credit less available to households and businesses.



The decline in core capital goods orders has several potential long-term implications for the manufacturing sector and the broader economy. Firstly, the reduction in spending on equipment can lead to a decrease in manufacturing output, as businesses invest less in machinery and equipment necessary for production. This could result in a slowdown in the manufacturing sector, which accounts for 11.9% of the U.S. economy. Secondly, the recent financial market turmoil, including the failure of two regional banks, has led to a tightening of lending standards. This is likely to make credit less available to households and businesses, further constraining investment. As Oren Klachkin, lead U.S. economist at Oxford Economics, noted, "We anticipate gloomier times ahead as spending softens, lending standards tighten and higher interest rates than the post-global financial crisis period make it costly to purchase capital goods and finance investment." This tightening of lending standards could exacerbate the decline in core capital goods orders, leading to a vicious cycle of reduced investment and slower economic growth.

Thirdly, the decline in core capital goods orders could also impact the broader economy. Business investment in equipment has been a significant contributor to economic growth in recent quarters. For instance, "Business investment in equipment notched hefty gains in the prior two quarters, contributing to the economy's brisk growth pace over that period." A contraction in this area could lead to a slowdown in overall economic growth. As Conrad DeQuadros, senior economic advisor at Brean Capital, stated, "The manufacturing sector is in recession and will be a drag on the broader economy." Lastly, the decline in core capital goods orders could also affect employment in the manufacturing sector. As businesses invest less in equipment, they may also reduce their workforce, leading to job losses. This could have a ripple effect on the broader economy, as reduced consumer spending due to job losses could further slow economic growth.



In conclusion, the decline in core capital goods orders, coupled with recent financial market turmoil and tightening lending standards, could have significant long-term implications for the manufacturing sector and the broader economy. These include a slowdown in manufacturing output, reduced economic growth, and potential job losses. However, the massive fiscal stimulus and the anticipated rebound in March offer some hope for a brighter economic outlook. As always, investors should remain vigilant and adapt their strategies to navigate the evolving economic landscape.