Nov 27, 2012 3 min read

WASHINGTON — U.S. companies in October increased their orders of machinery and equipment, a promising sign for future economic growth.Orders for core capital goods, considered a proxy for business investment, rose 1.7 percent in October, the best showing since a 2.3 percent rise in May, the Commerce Department said Tuesday. Orders in this category had slowed beginning in the spring, acting as a drag on overall economic growth.Total orders for durable goods were unchanged in October, at $216.9 billion, following a 9.2 percent jump in September that had been driven by a surge in demand for commercial aircraft. In October, demand for machinery, primary metals and communications equipment increased, while orders for autos, airplanes and computers fell.Many businesses had been holding back because they are worried about tax increases and federal spending cuts — known as the “fiscal cliff” — that would take effect in January unless Congress reaches a budget deal before then. Most economists predict the economy will experience a recession in the first half of 2013 if lawmakers and President Barack Obama can’t avoid the fiscal cliff.White House economists on Monday warned that the uncertainty of a potential hike in taxes next year for middle-class people could hurt consumer confidence and limit spending during the crucial holiday shopping season.Businesses also have grown more cautious because Europe’s financial crisis has pushed many countries in the region into recession. That has cut into U.S. exports and corporate profits. Growth also has slowed in China, Brazil and other big developing nations that are major markets for American exports.U.S. factory activity grew in October for a second straight month, according to a closely watched manufacturing survey by the Institute for Supply Management. But regional surveys indicated manufacturing shrank this month in the Philadelphia and New York regions, partly reflecting damage from Superstorm Sandy that disrupted area factories.The storm also may have weighed on durable goods orders in October, although most economists expect the storm’s impact to fade in coming weeks.The economy is expanding at a modest pace. Many economists now predict growth at an annual rate of roughly 3 percent in the July-September quarter, up from the initial estimate of 2 percent reported last month. The government will release its second estimate for third-quarter growth Thursday.Still, many economists say the economy is growing in the current October-December quarter at an annual rate below 2 percent. That’s too slow to make much of a dent in the unemployment rate, which was 7.9 percent last month.