Chickens coming home to roost, etc.

New orders for U.S.-made capital goods fell more than expected in April, further evidence that the economy was slowing after a growth spurt in the first quarter that was driven by exports and a buildup of inventories.

The report from the Commerce Department on Friday also showed orders for these goods were not as strong as previously thought in March and shipments were weak over the last two months, indicating that manufacturing was fast losing ground.

The sector, which accounts for about 12% of the economy, is being squeezed by businesses placing fewer orders while working off stockpiles of unsold goods in warehouses. The inventory overhang is concentrated in the automotive sector, which is experiencing slow sales. Boeing’s move to cut production of its troubled 737 MAX aircraft is also hurting manufacturing.

The loss of momentum came even before a recent escalation in the trade war between the United States and China, leading economists to expect demand for capital goods to remain soft.

And also……

Economists said the raft of weak data, uncertainty over the trade war and sluggish global growth could force the Federal Reserve to cut interest rates. The U.S. central bank recently suspended its three-year interest rate hiking campaign and last month showed little desire to alter its monetary policy stance.

“We had previously expected the next move from the Fed would be a hike, albeit at the very end of our forecast horizon in late 2020,” said Michael Feroli, an economist at JPMorgan in New York. “We now see the risks of the next move as about evenly distributed between a hike and a cut.”

…..which lead to this conclusion:

“That does not bode well for future production,” said Joel Naroff, chief economist at Naroff Economic Advisors in Holland, Pennsylvania. “It is becoming clear that whatever boom the tax cuts may have created, if they did much at all, is largely gone.”

reuters.com