U.S. core capital goods orders post biggest gain in nine months

WASHINGTON, (Reuters) - New orders for key U.S.-made capital goods increased by the most in nine months in October and shipments rebounded, suggesting some stabilization in business investment after it contracted for two straight quarters.

FILE PHOTO: Containers are seen at the port in San Pedro, California, U.S., March 22, 2018. REUTERS/Bob Riha, Jr.

The Commerce Department said on Wednesday orders for non-defense capital goods excluding aircraft, a closely watched proxy for business spending plans, surged 1.2% last month, the largest gain since January. These so-called core capital goods orders were boosted by increased demand for machinery, computers and electronic products and fabricated metals.

Data for September was revised slightly up to show core capital goods orders declining 0.5% instead of decreasing 0.6% as previously reported. Economists polled by Reuters had forecast core capital goods orders would drop 0.3% in October.

Core capital goods orders accelerated 0.9% on a year-on-year basis. Shipments of core capital goods increased 0.8% last month. Core capital goods shipments are used to calculate equipment spending in the government’s gross domestic product measurement.

Core capital goods shipments fell by a revised 0.8% in September. They were previously reported to have decreased 0.7%.

The Trump administration’s 16-month trade war with China has eroded business confidence, leading to a downturn in capital expenditure and manufacturing. There is still no sign that business investment will rebound even as the United States and China have inched closer to a partial trade deal.

Regional manufacturing surveys remain weak and output at factories dropped for a second straight month in October. Federal Reserve officials have blamed the business investment slump on the U.S.-China trade war and sluggish global growth, and do not anticipate a material improvement in the near term.

Business investment declined for a second straight quarter in the third quarter, the longest such stretch since late 2015.

Overall orders for durable goods, items ranging from toasters to aircraft that are meant to last three years or more, rose 0.6% in October after falling 1.4% in the prior month.

Orders for transportation equipment gained 0.7% after plunging 3.2% in September. Motor vehicles and parts orders dropped 1.9% last month. Orders for non-defense aircraft and parts increased 10.7% in October.

Reporting by Lucia Mutikani Editing by Paul Simao