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US business spending on equipment gaining momentum

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New orders for key US-made capital goods increased more than expected in April and shipments rebounded, suggesting that business spending on equipment was picking up after slowing down at the end of the first quarter.

[WASHINGTON] New orders for key US-made capital goods increased more than expected in April and shipments rebounded, suggesting that business spending on equipment was picking up after slowing down at the end of the first quarter.

The report from the Commerce Department on Friday added to data on consumer spending that point to momentum in the economy. Strong business and consumer spending bolster expectations that the Federal Reserve will raise interest rates next month. The US central bank increased borrowing costs in March and forecast at least two more rate hikes for this year.

Orders for non-defense capital goods excluding aircraft, a closely-watched proxy for business spending plans, jumped 1.0 per cent last month. The increase in the so-called core capital goods orders reversed March's 0.9 per cent drop.

Economists polled by Reuters had forecast core capital goods orders rising 0.7 per cent last month. Core capital goods orders increased 6.6 per cent on a year-on-year basis.

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Shipments of core capital goods rose 0.8 per cent last month after falling 0.7 per cent in March. Core capital goods shipments are used to calculate equipment spending in the government's gross domestic product measurement.

Business spending is being supported by the Trump administration's US$1.5 trillion income tax cut package, which came into effect in January. The government slashed the corporate tax rate to 21 per cent from 35 per cent. A strong economy and rising oil prices are also underpinning investment.

Business spending on equipment slowed in the first quarter after double-digit growth in the second half of 2017.

Prices of US Treasuries were trading higher on Friday while US stock index futures were weaker. The dollar rose against a basket of currencies.

Last month, orders for electrical equipment, appliances and components increased 2.6 per cent after rising 2.4 per cent in March. Orders for computers and electronic products gained 1.1 per cent while those for fabricated metals jumped 2.0 per cent. There were also increases in orders for primary metals.

But orders for machinery fell 0.8 per cent after decreasing 3.2 per cent in March.

Overall orders for durable goods, items ranging from toasters to aircraft that are meant to last three years or more, dropped 1.7 per cent in April as demand for transportation equipment tumbled 6.1 per cent. That followed a 2.7 per cent increase in durable goods orders in March.

Boeing reported on its website that it received only 78 aircraft orders in April compared to 197 in March.

Orders for motor vehicles and parts rose 1.8 per cent last month after advancing 0.6 per cent in March. Unfilled orders of durable goods rose 0.5 per cent in April. They have increased in five of the last six months. Unsold durable goods rose 0.3 per cent. 

REUTERS

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