A cargo ship full of shipping containers is seen at the port of Oakland, California, U.S., August 4, 2025. REUTERS/Carlos Barria/File Photo

By Lucia Mutikani

WASHINGTON (Reuters) -New orders for key U.S.-manufactured capital goods increased more than expected in July, suggesting business spending on equipment got off to a strong start in the third quarter.

The report from the Commerce Department on Tuesday also showed shipments of non-defense capital goods excluding aircraft, a closely watched proxy for business spending, surged by the most in more than two years last month. The strength in both orders and shipments of these so-called core capital goods was despite independent surveys indicating that businesses were hunkering down amid rising costs from tariffs on imports.

The data allayed some concerns over the economy's health that had been stirred by a sharp slowdown in employment gains during the three months through July. It could prompt economists to upgrade their economic growth estimates for this quarter.

"Business investment is strong, which makes the economic outlook a little less uncertain at least for now," said Christopher Rupkey, chief economist at FWDBONDS.

Core capital goods orders surged 1.1% last month after a revised 0.6% decline in June, the Commerce Department's Census Bureau said. Economists polled by Reuters had forecast core capital goods orders rebounding 0.2% after a previously reported 0.8% drop in June.

Shipments of core capital goods increased 0.7%, the biggest gain since April 2023, after rising 0.4% in the prior month. These shipments go into calculation of the spending component in the gross domestic product report.

Some of the rise in orders and shipments likely reflects higher prices rather than increased volumes as tariffs on imported goods raise costs for manufacturers. Manufacturing, which accounts for 10.2% of the economy, is heavily reliant on imported raw materials.

Core capital goods orders have fluctuated within a wide band this year, surging as businesses rushed to bring in goods before President Donald Trump's sweeping import duties kicked in, and declining as the front-loading abated.

The upbeat data was marred by Trump's unprecedented move to fire Federal Reserve Governor Lisa Cook, which renewed concerns over the central bank's independence. The dollar fell against a basket of currencies. U.S. Treasury yields rose. Stocks on Wall Street opened lower.

QUESTIONS LINGER

Business spending on equipment slowed in the second quarter following double-digit growth in the January-March quarter. Some economists still expected business spending on equipment to weaken this quarter because of the import duties.

"Policy uncertainty is lower now but not eliminated and some key questions remain unanswered," said Oren Klachkin, financial markets economist at Nationwide. "This will weigh on executives' minds and restrain capital expenditures, only for projects deemed essential or worth the potential cost."

Orders were boosted by a 1.8% jump in bookings for machinery as well as a 2.0% advance in electrical equipment, appliances and components.

There were also solid increases in orders for primary metals, computers and electronics, and fabricated metal products. But overall durable goods orders, items ranging from toasters to aircraft meant to last three years or more, fell 2.8% as bookings for commercial aircraft declined.

Durable goods orders decreased 9.4% in June. Boeing reported on its website that it had received only 31 aircraft orders compared to 116 in June. Boeing has been the biggest winner of the White House's trade deals and economists expect aircraft orders to rise this year.

"But significant orders for planes this year may be more a consequence of pulling forward of future orders as opposed to longer-lasting demand," said Veronica Clark, an economist at Citigroup. "This could imply a period of particularly weak aircraft orders and production at some point in the coming quarters."

(Reporting by Lucia Mutikani; Editing by Chizu Nomiyama)