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US core capital goods orders post biggest drop in a year

[WASHINGTON] New orders for key US-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 per cent last month. That was the biggest drop since September 2016 and followed an upwardly revised 2.1 per cent increase in September.

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

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

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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 per cent from 35 per cent. 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.

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 per cent of the US economy. Last month, orders for machinery increased 0.6 per cent.

Orders for electrical equipment, appliances and components climbed 0.8 per cent. 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 per cent last month as demand for transportation equipment tumbled 4.3 per cent. Durable goods orders increased 2.2 per cent in September.

Boeing 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 per cent last month after slipping 0.1 per cent in September.