American business improve despite expenditure tax cloud

WASHINGTON (Reuters)-a gauge of the planned U.s.-business spending more in October by the most in five months, raising cautious optimism that the sharp cuts in capital investment in the summer.

Fear of deep cuts in spending and large tax beginning next year, a combination known as the fiscal Cliff walks, Government had caused companies survival container nestled.

But orders for non-defence capital goods excluding aircraft, a closely watched proxy for business spending plans, rose 1.7 percent last month, the Commerce Department said Tuesday.

"Although the improvement in demand offers little encouragement that the worse of the malaise in capital investment may be behind us, there is little to suggest that this may be the beginning of a meaningful rebound," said Millan Mulraine, a senior economist at TD Securities in New York.

The increase in so-called core capital goods orders confounded economists expectations for a decline of 0.5%.

Lawmakers and the Obama administration are engaged in negotiations to avoid automatic cuts and increases that could suck $ 600 billion from the economy early next year and a fresh recession fuel tax. Little visible signs of progress have emerged.

"With intense focus on the fiscal cliff and continuing uncertainty about the Economic Outlook in the new year, it remains to be seen whether the shot October can be maintained. It is not clear that it can, "said Omair Sharif, an economist at RBS in Stamford, Connecticut.

"One month doesn't a trend and the trend shows solid companies are still in a kind of a wait-and-see mode on the area of the capital expenditure."

CONSUMERS MORE BULLISH

Given the lag between orders and shipments, economists expect business investment to remain an obstacle for economic activity in the fourth quarter.

Shipments of core capital goods fell in October for a fourth consecutive month, and economists said that the stronger orders not could translate into improved shipments until early 2013.

However, a few economists bumped up their meager fourth quarter GDP forecasts something because the decline in shipments was smaller than expected. Core goods shipments are used for calculating business expenses for equipment and software in the gross domestic product report.

In the third quarter, business spending tumbled for the first time since the 2007-09 recession ended, weighed down by the fiscal cliff, Europe's long-term debt problems and slowdown in global demand.

While the weakness in business spending has limiting growth, the housing market is good on steam and consumer confidence is more bullish, that the recovery of the aid.

Single-family house prices rose for an eighth straight month in September, a separate report showed. The default & poor 's/Case-Shiller composite index of 20 metropolitan areas gained 0.4 percent in September on a seasonally adjusted basis.

Home building to add to growth this year for the first time since 2005 and expected firming housing prices bode well for housing construction activity.

"The strengthening of the housing prices is a plus for growth through various channels, including increased consumer spending because of the wealth and confidence effects," said Jim O'Sullivan, Chief Economist at high frequency economics in Valhalla, New York.

A third report showed consumer confidence hit a 4-1/2 year high in November. Economists, however, warned that the fiscal Cliff sentiment could erode in the coming months.

Stocks on Wall Street ended down as investors worried about the lack of progress in the elaboration of a deal on the Government budgetary problem, while prices for U.s. Treasury debt eked out modest profit. The dollar firmed against a basket of currencies.

Orders for U.S. durable goods and ready-made — items intended to last three years or more — in October were unchanged as gains in machinery, fabricated metal products, and computer and electronic products offset the Drag of cars, Defense goods and civilian aircraft.

Economists had expected durable goods orders to fall 0.6 percent last month. They rose by 9.2 percent in September.

With the exception of transportation, orders rose 1.5 percent in October after a rise of 1.7 percent the previous month.

(Additional reporting by Edward Krudy in New York; Edit by Andrea Ricci, Tim Ahmann and Tim Dobbyn)

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