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US factory orders slip, business spending robust

Wednesday, December 06, 2017

WASHINGTON - New orders for US-made goods fell less than expected in October and shipments of core capital goods were much stronger than previously reported, pointing to sustained strength in manufacturing that should buoy the economy.

Factory goods orders dipped 0.1 per cent amid a drop in demand for both civilian and defense aircraft after an upwardly revised 1.7 per cent jump in September, the Commerce Department said on Monday.

"These data remain consistent with a solid upswing in manufacturing activity and an acceleration in corporate capital spending," said John Ryding, chief economist at RDQ Economics in New York.

Economists had forecast factory orders falling 0.4 per cent in October after a previously reported 1.4 per cent increase in the prior month.

Orders for non-defense capital goods excluding aircraft -seen as a measure of business spending plans - rose 0.3 per cent in October instead of the 0.5 per cent drop reported last month.

These so-called core capital goods orders surged 2.3 per cent in September. Shipments of core capital goods, which are used to calculate business equipment spending in the gross domestic product report, advanced 1.1 per cent in October instead of the previously reported 0.4 per cent rise.

Core capital goods shipments increased 1.3 per cent in September.

October's upward revision to core capital goods shipments prompted forecasting firm Macroeconomic Advisers to boost its fourth-quarter GDP growth estimate by two-tenths of percentage point to a 2.7 per cent annualised rate.

Economists at Barclays lifted their forecast to a 2.5 per cent pace from a 2.4 per cent rate. The economy grew at a 3.3 per cent pace in the third quarter.

"The shipments revision adds upside risk to our already double-digit forecast for fourth-quarter equipment spending growth, and the revised orders data show no sign of a slowdown in capital expenditures in the months ahead," said Jesse Edgerton, an economist at JPMorgan in New York.

Business spending on equipment has increased strongly this year as corporations anticipated hefty tax cuts from the Trump administration.

Republicans in the US Congress have approved a broad package of tax cuts, including slashing the corporate income tax rate to 20 per cent from 35 per cent.

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