WASHINGTON (Reuters) - 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.

FILE PHOTO: A car carrier trailer carries Tesla Model 3 electric sedans, is seen outside the Tesla factory in Fremont, California, U.S. June 22, 2018. REUTERS/Stephen Lam/File Photo

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.

The renewed trade tensions between Washington and Beijing have roiled the U.S. stock market. Data on Thursday showed a measure of factory activity hit an almost 10-year low in May.

“We can’t sugar-coat today’s news,” said Chris Rupkey, chief economist at MUFG in New York. “Business investment is absolutely critical for the economy to move forward and investment is normally the swing factor that pumps up growth or pulls out the support from the economy.”

Orders for non-defense capital goods excluding aircraft, a closely watched proxy for business spending plans, dropped 0.9% last month as demand softened almost across the board. These so-called core capital goods orders rose 0.3% in March instead of 1.0% as previously reported.

Economists polled by Reuters had forecast core capital goods orders falling 0.3% in April.

Shipments of core capital goods were unchanged last month after a downwardly revised 0.6% decline in the prior month. Core capital goods shipments are used to calculate equipment spending in the government’s gross domestic product measurement.

They were previously reported to have slipped 0.1% in March. Friday’s report followed data this month showing weak retail sales, industrial production and home sales that prompted economists to slash GDP growth forecasts for the second quarter.

The economy grew at a 3.2% annualized rate in the first quarter, but the downward revision to March core capital goods shipments suggests business spending on equipment was even weaker than initially estimated during the quarter. That could result in the January-March GDP growth estimate being trimmed when the government publishes its revision next week.

JPMorgan on Friday cut its second-quarter growth estimate to a 1.0% rate from a 2.25% pace. Growth is mostly slowing as last year’s massive stimulus from the Trump administration’s tax cuts and spending increases fades.

The dollar slipped against a basket on currencies in thin pre-holiday trade. U.S. Treasury prices dipped, while stocks on Wall Street were trading higher. U.S. markets are closed on Monday for the Memorial Day holiday.

WEAK DATA

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.”

Overall orders for durable goods, items ranging from toasters to aircraft that are meant to last three years or more, tumbled 2.1% in April after increasing 1.7% in the prior month. Orders for transportation equipment dropped 5.9% after rising 5.9% in March. Orders for motor vehicles and parts decreased 3.4% last month, the most since May 2018.

Orders for non-defense aircraft plunged 25.1% after rising 7.8% in March. Boeing reported receiving only four aircraft orders in April, down from 44 in March.

All of the orders last month were for the company’s fastest-selling MAX 737 jetliner, which was grounded in March after two fatal plane crashes in five months. Boeing has also suspended deliveries of the aircraft.

Overall durable goods shipments fell 1.6% in April, the most since December 2015, with civilian aircraft shipments tumbling 16.0% last month. Motor vehicle shipments dropped 3.4%.

Durable goods inventories rose 0.4% last month, boosted by stocks of motor vehicle and aircraft. Order books at factories also slipped in April.

“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.”