U.S. business equipment orders point to firm investment

[August 24, 2018]  WASHINGTON, (Reuters) - New orders for key U.S.-made capital goods increased more than expected in July and growth in shipments held firm, signs that business investment started the third quarter on a strong note.

The Commerce Department said on Friday orders for non-defense capital goods excluding aircraft, a closely watched proxy for business spending plans, rose 1.4 percent last month after an upwardly revised 0.9 percent increase in June.

Business spending on equipment is being supported by the Trump administration's $1.5 trillion income tax cut package, which came into effect in January.

But there are worries that trade tensions between the United States and its major trade partners, including China, Canada, Mexico and the European Union, could offset the fiscal stimulus.

Economists polled by Reuters had forecast the so-called core capital goods orders rising 0.4 percent in July after a previously reported 0.2 percent gain in June. Core capital goods orders increased 7.2 percent on a year-on-year basis.

Shipments of core capital goods rose 0.9 percent last month after an upwardly revised 0.9 percent gain in June.

Core capital goods shipments are used to calculate equipment spending in the government's gross domestic product measurement, so the higher estimate for shipments in June could contribute to an upward revision of overall economic growth in the second quarter.

Business investment drove about a quarter of economic growth in the April-June period, when the economy grew at its fastest pace in nearly four years as consumers boosted spending and farmers rushed shipments of soybeans to China to beat retaliatory trade tariffs before they took effect in early July.

The United States has slapped duties on $50 billion worth of Chinese goods so far, eliciting retaliatory tariffs from Beijing.

Overall orders for durable goods, items ranging from toasters to aircraft that are meant to last three years or more, fell 1.7 percent in July as volatile demand for civilian aircraft fell.

(Reporting by Jason Lange Editing by Paul Simao)

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