WASHINGTON, June 27 (Reuters) - New orders for key U.S.-manufactured capital goods unexpectedly fell in May, suggesting that business spending on equipment weakened in the second quarter as borrowing costs remain elevated.
Non-defense capital goods orders excluding aircraft, a closely watched proxy for business spending plans, dropped 0.6% last month, the Commerce Department's Census Bureau said on Thursday. Data for April was revised slightly higher to show these so-called core capital goods orders rising 0.3% instead of 0.2% as previously reported.
Economists polled by Reuters had forecast core capital goods orders edging up 0.1%.
Business spending on equipment is under pressure from higher interest rates and softening demand for goods.
A survey from the Institute for Supply Management early this month noted that "demand remains elusive as companies demonstrate an unwillingness to invest due to current monetary policy and other conditions."
The Federal Reserve has maintained its benchmark overnight interest rate in the current 5.25%-5.50% range since last July. Financial markets expect the U.S. central bank to start its easing cycle in September, though policymakers recently adopted a more hawkish outlook. The Fed has hiked its policy rate by 525 basis points since 2022 to quell inflation.
Core capital goods shipments dropped 0.5% after rising 0.4% in April. Non-defense capital goods orders decreased 0.9%, falling for a second straight month. Shipments of these goods tumbled 1.5% after increasing 2.1% in April. These shipments go into the calculation of the business spending on equipment component in the gross domestic product report.
Business spending on equipment rose marginally in the first quarter, making a tiny contribution to the economy's 1.4% annualized growth pace during that period.
Orders for durable goods, items ranging from toasters to aircraft meant to last three years or more, edged up 0.1% in May after a downwardly revised 0.2% gain in April.
Durable goods orders were previously reported to have advanced 0.6% in April. Transportation orders rose 0.6%, reflecting a 0.7% increase in motor vehicle orders.
Commercial aircraft orders fell 2.8%. Boeing (BA.N), opens new tab reported on its website that it had received only four orders for aircraft last month compared to seven in April.
The planemaker has been beset by problems, inviting scrutiny from regulators and customers since a Jan. 5 incident in which a smaller 737 MAX operated by Alaska Airlines was forced to make an emergency landing after a fuselage panel blew out mid-flight.
There were decreases in orders for machinery, primary metals as well as electrical equipment, appliances and components. Orders for computers and electronic products nudged up 0.1%.
Reporting by Lucia Mutikani; Editing by Andrea Ricci