LDN - Business

U.S. core capital goods orders post biggest drop in a year

[November 22, 2017]

WASHINGTON, (Reuters) - New orders for key U.S.-made capital goods unexpectedly fell in October after three straight months of hefty gains, but a sustained increase in shipments pointed to strong momentum in the economy as the year winds down.

The Commerce Department said on Wednesday that orders for non-defense capital goods excluding aircraft, a closely watched proxy for business spending plans, declined 0.5 percent last month. That was the biggest drop since September 2016 and followed an upwardly revised 2.1 percent increase in September.

Economists polled by Reuters had forecast orders of these so-called core capital goods increasing 0.5 percent last month after a previously reported 1.7 percent jump in September. Core capital goods orders rose 4.4 percent on a year-on-year basis.

Shipments of core capital goods advanced 0.4 percent last month after accelerating by 1.2 percent in September. Core capital goods shipments are used to calculate equipment spending in the government's gross domestic product measurement.

Core capital goods shipments have been increasing since February, in part fueled by expectations that President Donald Trump and his fellow Republicans in Congress will push through hefty corporate tax cuts.

Republicans in the House of Representatives last week approved a broad package of tax cuts, including an immediate reduction in the corporate income tax rate to 20 percent from 35 percent. Their colleagues in the Senate are advancing their own tax bill, which would also lower corporate taxes by the same rate but delay the reduction by one year.

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U.S. made plywood is shown for sale in Los Angeles, California, U.S., April 26, 2017. REUTERS/Mike Blake

Business spending on equipment has buoyed economic growth for the past four quarters and is expected to make a solid contribution to GDP in the October-December period.

Strong business spending on equipment is helping to boost manufacturing, which accounts for about 12 percent of the U.S. economy. Last month, orders for machinery increased 0.6 percent. Orders for electrical equipment, appliances and components climbed 0.8 percent. There were also increases in orders for primary metals and computers and electronic products.

Overall orders for durable goods, items ranging from toasters to aircraft meant to last three years or more, fell 1.2 percent last month as demand for transportation equipment tumbled 4.3 percent. Durable goods orders increased 2.2 percent in September.

Boeing <BA.N> reported on its website that it received 64 aircraft orders in October, down from 72 in the prior month.

Orders for motor vehicles and parts rebounded 1.7 percent last month after slipping 0.1 percent in September.

((Reporting by Lucia Mutikani; Editing by Paul Simao))

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