U.S. Business Spending Weakens Despite Upbeat Sentiment

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A key gauge of capital goods orders by U.S. businesses recorded its biggest drop in eight months in September, but the surprise decline was likely to be temporary as business sentiment has been upbeat in recent months.

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The Commerce Department said on Tuesday non-defense capital goods orders excluding aircraft, a closely watched proxy for business spending plans, fell 1.7 percent last month.

That was the largest decline in the so-called core capital goods since January of this year, and it followed a 0.3 percent increase in August.

The drop last month confounded Wall Street's expectations for a 0.6 percent gain and was at odds with business surveys that have showed increased business appetite for capital investment.

U.S. stock futures trimmed gains, while U.S. Treasury prices narrowed losses after the data. The U.S. dollar hit a session low against the euro.

With core capital goods declining, overall orders for durable goods - items ranging from toasters to aircraft that are meant to last three years or more - fell 1.3 percent.

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It was the second straight month of declines after August's 18.3 percent tumble. Durable goods orders have been volatile in recent months because of big swings in aircraft orders.

Last month, transportation orders fell 3.7 percent as aircraft orders surprisingly dropped 16.1 percent. Boeing <BA.N> recently reported on its website that it had received 122 orders last month, up from 107 in August.

Automobile orders dipped 0.1 percent in September. Apart from transportation, other categories in the report were mixed. Orders for primary metals and electrical equipment, appliances and components rose, while demand for machinery and computers and electronic products fell.

Core capital goods shipments slipped 0.2 percent last month after a 0.1 percent gain in August.

Shipments of these goods are used to calculate equipment spending in the government's gross domestic product measurement, and the drop last month could prompt economists to lower their third-quarter GDP estimates.

The government's advance GDP estimate on Thursday is expected to show the economy expanded at a 3.0 percent annual pace in the third quarter after the second quarter's robust 4.6 percent rate.

In a sign of strength in the manufacturing sector, unfilled orders of core capital goods increased 0.6 percent in September. Core capital goods inventories, which have been rising moderately in the third quarter, gained only 0.3 percent.

(Reporting by Lucia Mutikani; Editing by Paul Simao)