US core capital goods orders rise; transportation orders fall

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A gauge of U.S. business investment spending plans rebounded in May, offering a tentative sign of stabilization in the manufacturing sector after activity weakened sharply early this year.

But the lingering effects of lower oil prices and a strong dollar will continue to constrain factory activity for a while.

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The Commerce Department said on Tuesday non-defense capital goods orders excluding aircraft, a closely watched proxy for business spending plans, rose 0.4 percent last month. These so-called core capital goods orders slipped 0.3 percent in April.

Manufacturing has been pressured by investment spending cuts in the energy sector in the aftermath of a more than 60 percent plunge in crude oil prices last year, as well as dollar strength.

The number of U.S. oil drilling rigs has dropped to near five-year lows, prompting oilfield companies like Schlumberger and Halliburton to slash their capital expenditure budgets for this year. However, the pace of decline in oil rig counts has slowed in recent weeks as crude prices edged higher.

The dollar has gained about 12 percent against the currencies of the United States' main trading partners since June 2014, taking a bite out of the profits of multinational corporations. Factories also have been hampered by businesses placing fewer orders while working through a stockpile of goods accumulated last year.

Manufacturing is lagging other economic data, including housing and retail sales, which have rebounded after hitting a soft patch at the start of the year.

Economists polled by Reuters had expected core capital goods orders to rise 0.5 percent last month.

Shipments of core capital goods, which are used to calculate equipment spending in the government's gross domestic product measurement, increased 0.3 percent in May after a downwardly revised 0.3 percent increase in April.

Shipments in April were previously reported to have increased 0.5 percent.

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A 6.4 percent drop in transportation equipment, however, weighed down overall orders for durable goods—items ranging from toasters to aircraft that are meant to last three years or more—which fell 1.8 percent last month.

Total orders for durable goods dropped 1.8 percent in May after falling 1.5 percent in April. Last month's drop was caused in part by a 35.3 percent plunge in orders for aircraft, which are often volatile. Excluding transportation, orders rose 0.5 percent.

Economists polled by Reuters had expected durable goods orders to drop 1.0 percent in May.

The Associated Press and CNBC contributed to this report.