MACRO: US factory orders rebound in March. Yellen's rates comments

• US factory orders rose in March, however failed to beat expectations
• Yellen said interest rates may need to rise to stop economy from overheating

New orders for US manufactured goods rose by 1.1 % in March, rebounding from a revised 0.5 % decline in February, however today's figures came in below analysts estimates of a 1.3 % increase. Demand increased for machinery (1.5% vs -0.2 % in February), fabricated metal products (4.0 % vs 0.4 %), computers and electronic products (0.5 % vs -0.2 %), and primary metals (1.6 % vs 1.2 %). Meanwhile, orders for transport equipment continue to decline for a second straight month (-1.6 % vs -2.0 %), led by civilian aircraft and parts (-46.9 % vs 101.7 %) and defense aircraft and parts (-20.2 % vs -6.0 %). Unfilled orders at factories rose 0.4% after surging 0.9% in February. The Commerce Department also reported that orders for non-defense capital goods, excluding aircraft, which are seen as a measure of business spending plans on equipment, rose 1.2% in March from 0.9% reported last month.

New orders for U.S.-made goods rebounded in March from the February decline. Source: Bloomberg

It seems that the $1.9 trillion pandemic relief package has led to a boom in demand, which is pushing against supply constraints. Of course, the fiscal stimulus creates hopes for a strong economic recovery, as evidenced by the comments of economists, most of whom expect double-digit GDP growth in this quarter. However, it also increases inflation. Despite the fact that Fed chairman Powell downplays the phenomenon of rising inflation, central bankers from other countries are slowly starting to talk about tapering, for example, the Bank of Canada plans to reduce the QE scale from 4bCAD to 3bCAD per week. Today, US Treasury Secretary Janet Yellen  unexpectedly joined this group. During a economic seminar presented by The Atlantic, Yellen said “It may be that interest rates will have to rise somewhat to make sure that our economy doesn’t overheat,” “Even though the additional spending is relatively small relative to the size of the economy, it could cause some very modest increases in interest rates.” “But these are investments our economy needs to be competitive and to be productive. I think our economy will grow faster because of them,” she added. It will be interesting to see how Chair Powell will respond to her comments.