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US durable goods data suggests strong business equipment spending

[WASHINGTON] New orders for key US-made capital goods increased more than expected in September and shipments rose for an eighth straight month, pointing to robust business spending that should help to mitigate the impact on the economy from the hurricanes.

Other data on Wednesday showed new single-family home sales vaulting to a near 10-year high last month.

The signs of strong business investment on equipment in the third quarter and a pick-up in the housing market supported views the Federal Reserve will increase interest rates in December.

"The Fed can continue to remove its monetary stimulus confident that investment is heating back up after the downturn in orders and shipments a couple of years ago," said Chris Rupkey, chief economist at MUFG in New York.

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"Businesses don't invest in the future if they don't think consumers will be there to buy their goods and services."

The Commerce Department said non-defense capital goods orders excluding aircraft, a closely watched proxy for business spending plans, rose 1.3 per cent last month after an upwardly revised 1.3 per cent increase in August.

Economists had forecast orders of these so-called core capital goods increasing 0.5 per cent last month after a previously reported 1.1 per cent jump in August. Core capital goods orders advanced 3.8 per cent year-on-year.

Shipments of core capital goods climbed 0.7 per cent after soaring 1.2 per cent in August. Core capital goods shipments are used to calculate equipment spending in the government's gross domestic product measurement.

Core capital goods shipments have now increased for eight straight months. The dollar rose against a basket of currencies after the data as investors anticipated an interest rate hike in December, which would be the third this year.

Prices for US Treasuries fell, with the yield on the benchmark 10-year bond rising to a seven-month high. US stocks were trading slightly lower.

Business spending on equipment is expected to have contributed to economic growth in the third quarter, which could help to cushion the blow on GDP from Hurricanes Harvey and Irma.

Economists estimate that Harvey and Irma, which devastated parts of Texas and Florida, sliced off as much as one percentage point from third-quarter GDP.

The government is due to publish its advance GDP estimate for the July-September quarter on Friday. According to a Reuters survey of economists, the economy probably grew at a 2.5 per cent annualised rate in the July-September period, slowing down from the second quarter's brisk 3.1 per cent pace.

But the Commerce Department report, which also showed inventories increasing 0.6 per cent in September, the largest gain since June 2015, suggested third-quarter economic growth could surprise on the upside.

Inventory accumulation is expected to have provided a boost to growth in the third quarter.

The economy's improving outlook was also enhanced by a second report from the Commerce Department showing new home sales surged 18.9 per cent to a seasonally adjusted annual rate of 667,000 units last month amid an increase in all four regions.

That was the highest level since October 2007 and the percent gain was the largest since January 1992.

Strong business spending on equipment is helping to support manufacturing, which accounts for about 12 per cent of the US economy.

Last month, orders for computers and electronic products increased 1.6 per cent after surging 1.8 per cent in August. There were also increases in orders for fabricated metal products. But orders for machinery, primary metals and electrical equipment, appliances and components fell.

Overall orders for durable goods, items ranging from toasters to aircraft meant to last three years or more, shot up 2.2 per cent last month amid a 5.1 per cent rise in demand for transportation equipment. Durable goods orders increased two per cent in August.

Boeing reported on its website that it received 72 aircraft orders in September, up from 33 the prior month.

Orders for motor vehicles and parts edged up 0.1 per cent last month after accelerating 2.8 per cent in August. Unfilled orders for durable goods increased 0.2 per cent in September after being unchanged the prior month.

REUTERS