By Lucia Mutikani
WASHINGTON (Reuters) - New orders for key U.S.-made capital goods increased more than expected in September and shipments rose for an eighth straight month, pointing to robust business spending that should help to mitigate the impact on the economy from the hurricanes.
Other data on Wednesday showed new single-family home sales vaulting to a near 10-year high last month. The signs of strong business investment on equipment in the third quarter and a pick-up in the housing market supported views the Federal Reserve will increase interest rates in December.
"The positive reports keep the economy's wheels turning, and the Fed on track for another rate hike this year," said Chris Rupkey, chief economist at MUFG in New York. "Businesses don't invest in the future if they don't think consumers will be there to buy their goods and services."
The Commerce Department said non-defense capital goods orders excluding aircraft, a closely watched proxy for business spending plans, rose 1.3 percent last month after an upwardly revised 1.3 percent increase in August.
Economists had forecast orders of these so-called core capital goods increasing 0.5 percent last month after a previously reported 1.1 percent jump in August. Core capital goods orders advanced 3.8 percent year-on-year.
Shipments of core capital goods climbed 0.7 percent after soaring 1.2 percent in August. Core capital goods shipments are used to calculate equipment spending in the government's gross domestic product measurement.
Core capital goods shipments have now increased for eight straight months. Business investment on equipment stumbled in late 2015 and much of last year as declining oil prices hurt profits. Spending is in part being supported by a weakening dollar, strengthening global growth and steady oil prices.
The dollar briefly rose against a basket of currencies after the data as traders anticipated an interest rate hike in December, which would be the third this year.
Prices for U.S. Treasuries fell, with the yield on the benchmark 10-year bond rising to a seven-month high. U.S. stocks were trading slightly lower after lackluster earnings reports from AT&T (NYSE:T) and Boeing (NYSE:BA).
Business spending on equipment probably contributed to economic growth in the third quarter, which could help to cushion the blow on GDP from Hurricanes Harvey and Irma.
Economists estimate that Harvey and Irma, which devastated parts of Texas and Florida, sliced off as much as one percentage point from third-quarter GDP.
UPSIDE RISK TO THIRD-QUARTER GDP ESTIMATE
The government is due to publish its advance GDP estimate for the July-September quarter on Friday. According to a Reuters survey of economists, the economy probably grew at a 2.5 percent annualized rate in the July-September period, slowing down from the second quarter's brisk 3.1 percent pace.
But the Commerce Department report, which also showed inventories increasing 0.6 percent in September, the largest gain since June 2015, suggested third-quarter economic growth could surprise on the upside.
The economy's improving prospects were also underscored by a second report from the Commerce Department showing new home sales surged 18.9 percent to a seasonally adjusted annual rate of 667,000 units last month amid an increase in all four regions.
That was the highest level since October 2007 and the percent gain was the largest since January 1992. New home sales are, however, volatile month-to-month and last month's jump likely exaggerates the health of the housing market, which has struggled for much of this year.
"There are several reasons...to be reluctant to believe the upbeat message from today's home sales report," said Daniel Silver, an economist at JPMorgan (NYSE:JPM) in New York. "This recent surge in activity has not been evident in a number of the other housing indicators that we track."
Strong business spending on equipment is helping to support manufacturing, which accounts for about 12 percent of the U.S. economy. Overall orders for durable goods, items ranging from toasters to aircraft meant to last three years or more, shot up 2.2 percent last month amid a 5.1 percent rise in demand for transportation equipment.
Durable goods orders increased 2.0 percent in August. Unfilled orders for durable goods increased 0.2 percent in September after being unchanged the prior month.