WASHINGTON, June 27 Reuters New orders for key U.S.manufactured capital goods unexpectedly fell in May, suggesting that business spending on equipment weakened in the second quarter as borrowing costs remain elevated.

Nondefense capital goods orders excluding aircraft, a closely watched proxy for business spending plans, dropped 0.6 last month, the Commerce Department39;s Census Bureau said on Thursday. Data for April was revised slightly higher to show these socalled core capital goods orders rising 0.3 instead of 0.2 as previously reported.

Economists polled by Reuters had forecast core capital goods orders edging up 0.1.

Business spending on equipment is under pressure from higher interest rates and softening demand for goods.

A survey from the Institute for Supply Management early this month noted that demand remains elusive as companies demonstrate an unwillingness to invest due to current monetary policy and other conditions.

The Federal Reserve has maintained its benchmark overnight interest rate in the current 5.255.50 range since last July. Financial markets expect the U.S. central bank to start its easing cycle in September, though policymakers recently adopted a more hawkish outlook. The Fed has hiked its policy rate by 525 basis points since 2022 to quell inflation.

Core capital goods shipments dropped 0.5 after rising 0.4 in April. Nondefense capital goods orders decreased 0.9, falling for a second straight month. Shipments of these goods tumbled 1.5…