WASHINGTON (Reuters) - U.S. business spending on equipment appeared to have remained slow in September and the goods trade deficit widened further as rising imports outpaced a rebound in exports, suggesting economic growth moderated in the third quarter.

U.S. made plywood is shown for sale in Los Angeles, California, U.S., April 26, 2017. REUTERS/Mike Blake

But the growth pace in the last quarter was probably solid, with other data on Thursday showing gains in both wholesale and retail inventories last month. A tightening labor market, which is steadily lifting wage growth, is also supporting the economy.

The Commerce Department said orders for non-defense capital goods excluding aircraft, a closely watched proxy for business spending plans, dipped 0.1 percent last month amid weakening demand for fabricated metals and electrical equipment, appliances and components.

That followed a 0.2 percent decrease in the so-called core capital goods orders in August. Economists polled by Reuters had forecast core capital goods orders rising 0.5 percent last month. Shipments of core capital goods were unchanged in September for a second straight month.

Core capital goods shipments are used to calculate equipment spending in the government’s gross domestic product measurement.

“It looks like business has ordered up all the new equipment they need for now to meet the demand for their goods and services,” said Chris Rupkey, chief economist at MUFG in New York. “The third quarter may prove to be the high-water mark for U.S. manufacturing.”

Business spending on equipment is slowing after growing at a brisk pace for more than a year. It was buoyed by the Trump administration’s $1.5 trillion tax cut package, which included a sharp reduction in the corporate tax rate.

But the impact of lower taxes is being offset by the administration’s “America First” policies, which have led to a bitter trade war between the United States and China, as well as tit-for-tat tariffs with other major trade partners.

Companies including Caterpillar Inc CAT.N, 3M Co MMM.N and Ford Motor Co F.N have complained about rising manufacturing costs as a result of the duties on imported steel and other raw materials.

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In its Beige Book report published on Wednesday, the Federal Reserve said “manufacturers reported raising prices of finished goods out of necessity as costs of raw materials such as metals rose, which they attributed to tariffs.”

The dollar .DXY rose against a basket of currencies after European Central Bank chief Mario Draghi said the monetary union remained fragile and failed to assuage concerns about financial instability in Italy. Stocks on Wall Street were trading higher while U.S. Treasury prices fell.

TRADE DRAG

In another report on Thursday, the Commerce Department said the goods trade deficit increased 0.8 percent to $76.0 billion in September. Exports of goods rose $2.5 billion to $141.0 billion last month, boosted by shipments of industrial supplies, motor vehicles, consumer and capital goods.

But food exports continued to decline, likely pulled down by shipments of soybeans, which have borne the brunt of Washington’s trade fight with Beijing.

The rebound in goods exports last month was eclipsed by a $3.1 billion increase in goods imports to $217.0 billion. There were sharp increases in imports of consumer and capital good, reflecting robust domestic demand.

The anticipated drag on GDP growth from the deteriorating trade deficit is expected to be offset somewhat by an increase in inventory investment. The Commerce Department said wholesale inventories rose 0.3 percent last month. Retail inventories gained 0.1 percent.

“We still look for trade to be a significant drag on third-quarter growth and inventories to be a significant boost,” said Daniel Silver, an economist at JPMorgan in New York. “The big swings in trade and inventories between the second and third quarters are likely at least partially due to changes in activity associated with trade policy.”

According to a Reuters survey of economists, the economy probably grew at a 3.3 percent annualized rate in the third quarter after expanding at a 4.2 percent pace in the April-June period. The government will publish its snapshot of third-quarter GDP growth on Friday.

A third report from the Labor Department on Thursday showed initial claims for state unemployment benefits increased 5,000 to a seasonally adjusted 215,000 for the week ended Oct. 20. Claims fell to 202,000 during the week ended Sept. 15, which was the lowest level since November 1969.

Economists polled by Reuters had forecast claims rising to 214,000 in the latest week. The four-week moving average of initial claims, considered a better measure of labor market trends as it irons out week-to-week volatility, was unchanged at 211,750 last week.

The labor market is viewed as being near or at full employment, with the unemployment rate close to a 49-year low of 3.7 percent. There are a record 7.14 million open jobs in the economy, suggesting a shortage of skilled workers.