New orders for U.S.-made capital goods and shipments increased solidly in May, pointing to sustained strength in business spending on equipment in the second quarter, but rising interest rates and tighter financial conditions could slow momentum.
Orders for non-defense capital goods excluding aircraft, a closely watched proxy for business spending plans, rose 0.5% last month, the Commerce Department said on Monday. These so-called core capital goods orders gained 0.3% in April.
Economists polled by Reuters had forecast core capital goods orders would climb 0.3%.
Core capital goods orders were boosted by strong demand for machinery, primary metals as well as computers and electronic products. But orders for electrical equipment, appliances and components fell 0.9%, while demand for fabricated metal products was unchanged.
Shipments of core capital goods increased 0.8% last month, matching April’s gain. Core capital goods shipments are used to calculate equipment spending in the gross domestic product measurement.
Robust business investment in equipment helped to sustain strong domestic demand in the first quarter even as the economy contracted at a 1.5% annualized rate, hit by a record trade deficit.
The Federal Reserve this month raised its policy rate by three-quarters of a percentage point, its biggest hike since 1994. The U.S. central bank has increased its benchmark overnight interest rate by 150 basis points since March.
Orders for durable goods, items ranging from toasters to aircraft that are meant to last three years or more, advanced 0.7% in May after rising 0.4% in April.
They were lifted by a 0.8% gain in orders for transportation equipment, which followed a 0.7% increase in April.
Motor vehicle orders climbed 0.5% after edging up 0.1% in April. Orders for the volatile civilian aircraft category fell 1.1%. Boeing BA.N reported on its website that it had received 23 aircraft orders in May, down from 46 in April.
Shipments of durable goods increased 1.3% last month after gaining 0.3% in April. Unfilled durable goods orders rose 0.3%.
