US core capital goods orders and shipments surge in June

New orders for key U.S.-made capital goods increased more than expected in June and shipments surged, pointing to solid growth in business spending on equipment in the second quarter.

The Commerce Department said on Thursday that orders for non-defense capital goods excluding aircraft, a closely watched proxy for business spending plans, rose 0.6 percent last month.

Data for May was revised higher to show the so-called core capital goods orders increasing 0.7 percent instead of the previously reported 0.3 percent gain.

Economists polled by Reuters had forecast core capital goods orders rising 0.4 percent last month. Core capital goods orders increased 6.8 percent on a year-on-year basis.

Shipments of core capital goods jumped 1.0 percent last month after an unrevised 0.2 percent gain in May. Core capital goods shipments are used to calculate equipment spending in the government’s gross domestic product measurement.

Business spending on equipment has risen since the fourth quarter of 2016. It is expected to have combined with robust consumer spending and strong export growth to boost second-quarter GDP growth.

According to a Reuters survey of economists, GDP growth likely increased at a 4.1 percent annualized rate in the April-June period, which would be double the 2.0 percent pace notched in the first quarter. The government will publish its advance estimate of second-quarter GDP growth on Friday.

Business spending on equipment is being supported by the Trump administration’s $1.5 trillion income tax cut package, which came into effect in January. But there are worries that trade tensions between the United States and its major trade partners, including China, Canada, Mexico and the European Union, could offset the fiscal stimulus.

Last month, orders for electrical equipment, appliances and components rebounded 1.5 percent after slipping 0.5 percent in May. Orders for computers and electronic products rose 0.6 percent while those for machinery gained 0.2 percent.

There was also an increase in demand for fabricated metals. Orders for primary metals fell 0.4 percent.

Overall orders for durable goods, items ranging from toasters to aircraft that are meant to last three years or more, increased 1.0 percent in June as demand for transportation equipment rebounded 2.2 percent. That followed a 0.3 percent drop in durable goods orders in May.

Orders for motor vehicles and parts jumped 4.4 percent last month, the biggest increase since March 2015, after plunging 4.5 percent in May.

Orders for civilian aircraft rose only 4.3 percent last month, despite Boeing reporting on it website that it had received 233 aircraft orders, up from only 43 planes in May.