US business spending weakens despite upbeat sentiment

[WASHINGTON] A key gauge of capital goods orders by US businesses recorded its biggest drop in eight months in September, but the surprise decline was likely to be temporary as business sentiment has been upbeat in recent months.

The Commerce Department said on Tuesday non-defense capital goods orders excluding aircraft, a closely watched proxy for business spending plans, fell 1.7 per cent last month.

That was the largest decline in the so-called core capital goods since January of this year, and it followed a 0.3 per cent increase in August.

The drop last month confounded Wall Street's expectations for a 0.6 per cent gain and was at odds with business surveys that have showed increased business appetite for capital investment.

US stock futures trimmed gains, while US Treasury prices narrowed losses after the data. The US dollar hit a session low against the euro.

With core capital goods declining, overall orders for durable goods - items ranging from toasters to aircraft that are meant to last three years or more - fell 1.3 per cent.

It was the second straight month of declines after August's 18.3 per cent tumble. Durable goods orders have been volatile in recent months because of big swings in aircraft orders.

Last month, transportation orders fell 3.7 per cent as aircraft orders surprisingly dropped 16.1 per cent. Boeing recently reported on its website that it had received 122 orders last month, up from 107 in August.

Automobile orders dipped 0.1 per cent in September. Apart from transportation, other categories in the report were mixed. Orders for primary metals and electrical equipment, appliances and components rose, while demand for machinery and computers and electronic products fell.

Core capital goods shipments slipped 0.2 per cent last month after a 0.1 per cent gain in August.

Shipments of these goods are used to calculate equipment spending in the government's gross domestic product measurement, and the drop last month could prompt economists to lower their third-quarter GDP estimates.

The government's advance GDP estimate on Thursday is expected to show the economy expanded at a 3.0 per cent annual pace in the third quarter after the second quarter's robust 4.6 per cent rate.

In a sign of strength in the manufacturing sector, unfilled orders of core capital goods increased 0.6 per cent in September. Core capital goods inventories, which have been rising moderately in the third quarter, gained only 0.3 per cent.

REUTERS