This week's downward revision of the government's durable goods report is making U.S. manufacturers and economists a bit queasy about a future that until recently was only described as rosy.
"What's the saying? 'Get used to disappointment,' " said Scott Anderson, chief economist at Bank of the West. "Despite expectations for stabilization, durable goods orders for February remained weaker than expected, dropping another 1.4 percent," or $3.2 billion.
Excluding airplanes and defense products, capital goods orders for U.S.-made machinery, appliances and other long-lasting goods, fell for a sixth month. That is the longest stretch of declines since September 2012.
And that's not the only report making factory heads keep the Pepto-Bismol close.
On Friday, the final reading of the fourth-quarter gross domestic product was left at 2.2 percent, unchanged from its previous take. Analysts had expected an upward revision. That number compares with 5 percent growth in the third quarter and 4.6 percent during the second.
"So there was a significant deceleration in the pace of activity in the fourth quarter. GDP growth was marginally weaker than expectations," said Ward McCarthy, chief financial economist and managing director of Jefferies & Co. Inc.
Chad Moutray, chief economist for the National Association of Manufacturers, credited February's unexpected dip in factory orders, and the fourth-quarter production slowdown to unrelenting winter storms, plunges in oil prices and the surge in the U.S. dollar, which is starting to cramp most manufacturers' profits.
"We have seen a number of pretty significant head winds hit the U.S. here in the early goings of 2015," Moutray said.
3M, Arctic Cat, Pentair, Ecolab and Polaris are just a few manufacturers that reported being bitten by the surging U.S. dollar last quarter.
The rising dollar, which makes exports more expensive to overseas customers, took hold at the same time that economies in Asia and Europe slowed down.
U.S. snowstorms in January and February shut down retailers, factories, airports, train stations and freight. That plus labor disputes at several West Coast ports, "would all be factors in this durable goods number," Moutray said.
He and other economists said they are watching to see if slower product orders and factory production prompt factory layoffs or stall the hiring that boosted factory and construction employment last year.
For Minnesota, the waters are already muddying.
In February, Minnesota construction hiring shot up by 1,600 jobs, while manufacturing employment fell by 600 jobs. That comes after both sectors reported growth in 2014.
Jobs aside, Scott wondered what the six-month dip in U.S. product orders will mean for the country, banks, and borrowing.
When orders fell for seven consecutive months back in 2012, it "culminated in the launch of [the Fed's third round of] quantitative easing," Scott said. "Does that mean quantitative easing number four is in our near future? Probably not. But it does help explain the Federal Reserve's Open Meeting Committee's [recent] dovish statement and caution about raising interest rates over the near-term."
Scott also worries that the strong U.S. dollar could put a serious dent in U.S. exports. While U.S. exports saved the day during the Great Recession there are fresh signs of slowing, he said.
"U.S. goods exports are already 3.9 percent lower than a year ago," Scott said. U.S. exports in January were $184.9 billion, down $5.6 billion from December 2014.
It is not clear how Minnesota will fare.
The state reported record exports in 2014 as farm and factory orders to Canada, Mexico, China and overseas jumped 2.9 percent, to $21.4 billion. First quarter export numbers are due in April.
Dee DePass • 612-673-7725
