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US durable goods orders fell 4.0% in June vs. 1.1% drop expected

An employee builds a component for hybrid electric vehicle motors at the Toshiba International Corp. manufacturing facility in Houston.
Matthew Busch | Bloomberg | Getty Images
An employee builds a component for hybrid electric vehicle motors at the Toshiba International Corp. manufacturing facility in Houston.

New orders for U.S. manufactured capital goods rose modestly in June, but weak demand for machinery and a range of other goods suggested business spending will remain subdued for a while.

The Commerce Department said on Wednesday non-defense capital goods orders excluding aircraft, a closely watched proxy for business spending plans, increased 0.2 percent last month after a downwardly revised 0.5 percent decline in May.

These so-called core capital goods orders were previously reported to have declined 0.4 percent in May. Economists polled by Reuters had forecast core capital goods orders rising 0.3 percent last month.

Overall orders for durable goods, items ranging from toasters to aircraft that are meant to last three years or more, tumbled 4.0 percent last month, the biggest drop since August 2014, after a downwardly revised 2.8 percent fall in May.

Durable goods orders were previously reported to have declined 2.3 percent in May.

Business spending has weakened since late 2015, in part as lower oil prices squeezed profits in the energy sector, forcing companies to slash capital spending budgets. Uncertainty over global demand and the upcoming U.S. presidential elections are also making companies cautious about spending, economists say.

Business investment remains soft despite data ranging from retail sales to housing suggesting the economy has regained speed after growth almost stalled early in the year. Economists say weak business spending could be one of the factors that could encourage Federal Reserve officials to keep interest rate unchanged when the end a two-day meeting later on Wednesday.

Prospects for a pick-up in business spending remain dim against the backdrop of lackluster corporate profits.

Shipments of core capital goods, which are used to calculate equipment spending in the government's gross domestic product measurement, fell 0.4 percent last month after sliding 0.5 percent in May. That suggests business spending probably fell again in the second quarter.

In June, orders for electrical equipment, appliances and components increased 0.8 percent. But orders for machinery, primary metals, computers and electronic products fell.

Orders for transportation equipment slumped 10.5 percent as bookings for aircraft plunged 58.8 percent. Orders for automobiles rose 2.6 percent.