Demand for long-lasting U.S. manufactured goods fell in June and a gauge of business spending plans slipped, supporting views that the economy will not emerge quickly from its current soft patch.
Weak receipts for transportation equipment pushed down durable goods orders 2.1 percent, the Commerce Department said on Wednesday, after a 1.9 percent increase in May.
Non-defense capital goods orders excluding aircraft, a closely watched proxy for business spending, slipped 0.4 percent last month after a 1.7 percent rise in May.
Economists said the drop in the so-called core category was troubling and could potentially yield slower growth in spending by businesses on equipment and software in the third quarter.
"Core capital goods orders have a seasonal tendency to increase briskly in the last month of the quarter, so the June decline is somewhat worrisome regarding the vigor of the trend in capital spending," said Michael Feroli, an economist at JPMorgan in New York.
"This is particularly so given that the June data probably predates any debt ceiling-driven precaution on the part of business behavior."
Durable goods are items ranging from toasters to aircraft that are meant to last three years or more. Though orders tend to be volatile, last month's unexpected decline suggested factory activity was losing steam.
Manufacturing has been a bright spot for the economy, whose recovery has faltered since the start of the year.
Economists had expected overall orders to rise 0.3 percent and core capital goods to increase 0.8 percent.
Excluding transportation, orders edged up 0.1 percent after gaining 0.7 percent in May.
TOO MUCH UNCERTAINTY
The economy has been beset by high gasoline prices and supply chain disruptions following the March earthquake in Japan. Activity has struggled to regain momentum, and hopes of a swift pick-up in growth are fading.
There was bad news on Wednesday for housing, one of the economy's trouble spots, as demand for loans to purchase homes fell for a third straight week to the lowest level since late February. The Mortgage Bankers Association said its mortgage purchase index fell 3.8 percent last week.
The data helped push U.S. stock prices down but investors were mostly focused on the drama in Washington, where talks to raise the nation's debt ceiling remained deadlocked.
Businesses, sitting on a $2 trillion cash pile have been spending heavily on equipment and software. Economists said businesses still had pent-up demand, but said much would depend on developments in Washington over the next days.
Politicians are no closer to agreement on raising the country's borrowing limit, and the threat of the U.S. defaulting on its debt and a downgrade of the nation's coveted triple-A credit rating is growing.
"Surveys heading into the year suggested that businesses were ready to deploy cash to invest in labor and capital, and the year has created a lot of uncertainty that has businesses remaining cautious in doing so," said Brian Levitt, an economist at OppenheimerFunds in New York.
"We're going to need some clarity over the next week and if events turnout as the market hopes it will, there is still some impetus for growth as we head out into year-end."
Shipments of non-defense capital goods orders excluding aircraft, which go into the calculation of gross domestic product, rose 1.0 percent in June after increasing 1.7 percent in May.
Data on Friday is expected to show the economy grow at a 1.8 percent annual rate in the second quarter, according to a Reuters survey, after expanding 1.9 percent in the January-March period.
Orders last month were pulled down by an 8.5 percent drop in orders for transportation equipment. That reflected a 28.9 percent plunge in aircraft receipts and a 1.4 percent drop in motor vehicle orders.
(Editing by Andrea Ricci)