WASHINGTON – U.S. companies in October increased their orders of machinery and equipment that signal investment plans by the largest amount in five months, a hopeful sign for future economic growth.

The Commerce Department said orders for core capital goods, considered a proxy for business investment, rose 1.7 per cent in October, the best showing since a 2.3 per cent rise in May. Orders 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 per cent 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 across-the-board tax increases and deep federal spending cuts known as the “fiscal cliff” that will take effect in January unless Congress and President Barack Obama reach a budget deal before then. Most economists predict the economy will suffer a recession in the first half of 2013 otherwise.

Businesses have also grown more cautious because Europes financial crisis has pushed many countries in the region into recession. That has cut into U.S. exports and corporate profits. Growth has also slowed in China, Brazil and other big developing nations which are major markets for American exports.

U.S. factory activity grew in October for a second straight month, according to the Institute for Supply Managements closely watched manufacturing survey. But regional surveys indicated manufacturing shrank this month in the Philadelphia and New York regions, partly reflecting damage from Superstorm Sandy, which disrupted area factories.

The storm may have also weighed on durable goods orders in October, although most economists expect the storms impact to fade in the coming weeks.

The economy is expanding at a modest pace. Many economists now predict growth at an annual rate of roughly 3 per cent in the July-September quarter, up from the initial estimate of 2 per cent reported last month. The government releases its second estimate for third-quarter growth on Nov. 29.

Still, many economists say the economy is growing in the current October-December quarter at an annual rate below 2 per cent. Thats too slow to make much of a dent in the unemployment rate, which was 7.9 per cent last month.