U.S. Business Investment Slows Sharply in April Amid Tariff Uncertainty

27 May 2025

AP Photo

Business investment in the United States experienced a significant decline in April 2025, as companies grappled with mounting uncertainty over trade policies and tariffs. The Commerce Department reported that new orders for core capital goods non-defense capital goods excluding aircraft, a key indicator of business spending plans, fell by 1.3% in April, marking the most substantial drop in six months.

This downturn follows a modest 0.3% increase in March and suggests that businesses are becoming increasingly cautious about capital expenditures. Shipments of core capital goods also declined by 0.1% in April, indicating a potential slowdown in equipment spending at the start of the second quarter.

Economists attribute this pullback to the unpredictable nature of trade policies under President Donald Trump's administration. Recent proposals, including a 50% tariff on European Union goods and a 25% duty on iPhones manufactured outside the U.S., have created a volatile environment for businesses trying to plan future investments.

"The flip-flopping on import duties is making it difficult for businesses to plan ahead," said Stephen Stanley, chief U.S. economist at Santander U.S. Capital Markets. "These data offer the first confirming evidence of that hypothesis."

The broader category of durable goods orders, which includes items ranging from toasters to aircraft, also saw a significant decline of 6.3% in April. This drop was largely due to a decrease in orders for commercial aircraft and motor vehicles. Boeing reported receiving only eight aircraft orders in April, down from 192 in March.

The manufacturing sector, already under pressure from high input costs and supply chain disruptions, is facing additional challenges due to these trade uncertainties. The Institute for Supply Management reported that its manufacturing PMI fell to 48.7 in April, indicating contraction in the sector.

Despite these challenges, consumer confidence has shown signs of improvement. The Conference Board's Consumer Confidence Index rose to 98.0 in May, up from 85.7 in April, suggesting that consumers remain optimistic about the economy.

However, the outlook for business investment remains uncertain. Companies are likely to continue delaying capital expenditures until there is more clarity on trade policies and economic conditions. The ongoing volatility in trade relations and tariff implementations poses a significant risk to sustained economic growth.

As businesses navigate this complex landscape, policymakers will need to consider the implications of trade policies on domestic investment and economic stability. Clear and consistent trade strategies may be essential to restoring business confidence and encouraging investment in the coming months.