Factory Orders Crack While Costs Surge: Two Numbers That Matter

Transportation drove the headline miss — nondefense aircraft orders plunged 28.6% as Boeing's order book thinned. But dismiss this as Boeing noise at your own risk. Even excluding transportation, core capital goods orders have decelerated sharply from the mid-2025 pace. The manufacturing sector is not investing.

This matters for GDP. Durable goods orders are a leading indicator of business fixed investment, which contributed 1.1 percentage points to Q4 2025 GDP growth. If orders keep falling at this rate through Q1, that contribution flips negative — right as the GDP+PCE release on April 9 is expected to show further deceleration.

The ISM Services Prices Paid index jumped from 63.0 to 70.7 in March — a 7.7-point surge that represents one of the largest single-month increases in the survey's history. Seventeen of 18 service industries reported paying higher prices, with the steepest hikes in transportation, warehousing, and construction. The earlier ISM price spike was a warning shot. This is the full barrage.

The catalyst is obvious: oil. WTI crude has surged from $89 in late March to above $115, a 29% spike driven by the Iran conflict and Hormuz Strait disruption fears. But oil prices do not stay in the energy sector. They cascade.

Transportation costs hit restaurants, retailers, and hospitals. Construction material costs hit housing and commercial real estate. Warehousing costs hit every company with a supply chain — which is every company. The 70.7 reading is not a one-off. It is the service sector repricing the entire cost structure of a $115 oil world.

The federal funds rate has sat at 3.64% since January. Before the Iran crisis, markets were pricing three rate cuts by year-end. The March payrolls report at +178K already complicated that narrative. Now the ISM data has killed it.

The 10-year Treasury yield at 4.35% with the 2-year at 3.84% gives a positive spread of 51 basis points — a normalized yield curve that in ordinary times would signal the economy is functioning. But these are not ordinary times. The curve is positive because inflation expectations are rising faster than growth expectations, not because growth is accelerating.

Cut rates and you pour gasoline on a 70.7 prices-paid reading. Hold rates and you watch durable goods orders — already down three straight months — fall further as borrowing costs stay elevated for manufacturers already squeezed by input costs.

The textbook answer to stagflation is "there is no good policy response." That is exactly where the Fed sits. Chair Powell's March press conference language about "monitoring the situation" looks increasingly like denial. The situation is not developing. It has developed.

Three releases in the next four days will either confirm or complicate this thesis.

April 9 — GDP + Core PCE: Q4 2025 GDP came in at $31.4 trillion (annualized). The final Q4 reading and initial Q1 signals will show whether the durable goods weakness is bleeding into the broader economy. Core PCE — the Fed's preferred inflation gauge — will reveal whether the ISM prices paid surge is reaching consumers.

April 10 — CPI: Consensus expects 0.9% month-over-month and 3.4% year-over-year, a potential jump of a full percentage point from February's 2.4%. A print at or above 3.4% would be the highest CPI since mid-2023 and would effectively end any remaining rate-cut expectations for 2026.

The combination matters more than any single number. If GDP decelerates while CPI accelerates, the stagflation case is no longer based on oil prices and ISM surveys. It is in the hard data. And hard data is what the Fed acts on — eventually.