US’s transportation bookings are likely to be down in April, an improved picture outside of this volatile category is expected. Orders excluding transportation likely increased by 1.0% m/m, which would mark the strongest sequential improvement since last summer. A similar gain in core capex orders is expected which focus on capital goods excluding defense and aircraft. Analysts’ optimism is driven by the modest rebound in the ISM index for new orders and by the fact that core capex orders appear to have undershot and are therefore due for a rebound. Even with Societe Generale projects 1.0%, the 3m annualized growth rate for this category would weaken from -9.4% to -9.9%. Therefore, further sequential gains will be required in order to reverse the negative momentum.Two factors are driving the current weakness in orders. First, the capex cuts in the oil and gas sector are ongoing, but that they are coming to an end. Based on company guidance the downturn in this sector likely to be over by mid-year. This view is also consistent with rig counts which appear to be leveling off. Dollar strength is another factor behind the recent order weakness which has the potential of persisting for some time.“However, given the recent stabilization in the exchange rates analysts believe that at the very least the drag should diminish going forward. Aside from these two forces, the fundamental backdrop for capex as favorable. On net, business investment is likely to remain weak in the second quarter but rebound in the second half of the year”, said Societe Generale in a report on Tuesday.
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