New orders for key U.S.-made capital goods fell more than expected in September and shipments also declined, a sign that business investment remains soft amid the continuing fallout from the U.S.-China trade war.

The Commerce Department said on Thursday orders for non-defense capital goods excluding aircraft, which are seen as a measure of business spending plans on equipment, fell 0.5% last month on weak demand for transportation equipment, motor vehicle parts and computers and electronic products.

Data for August was revised down to show core capital goods orders falling 0.6% instead of declining 0.4% as previously reported. Economists polled by Reuters had forecast core capital goods orders dipping 0.2% in September.

Such goods orders increased 1.0% on a yearly basis. Shipments of core capital goods dropped 0.7% last month. Core capital goods shipments are used to calculate equipment spending in the government's gross domestic product measurement. Shipments for August were flat after being revised from a previously reported 0.3% gain.

The U.S. Federal Reserve has cut interest rates twice this year and investors currently see another reduction in borrowing costs when policymakers meet next week as the economy grapples with the fallout from a more than year-long U.S.-China trade war and slowing global growth.

The manufacturing sector, which makes up about 11% of the U.S. economy, has been hobbled by the trade dispute, which has hurt business confidence and investment, and cast a cloud of uncertainty over the economic outlook.

U.S. manufacturing output fell more than expected in September, hampered by a strike at General Motors, Fed data showed last week while business investment fell at a 1.0% annualized rate last quarter, the biggest drop since the fourth quarter of 2015, the government reported last month.

Earlier this month, U.S. President Donald Trump outlined the first phase of a deal to end the trade war with China and suspended a threatened tariff hike, but officials on both sides said much more work needed to be done before an accord could be agreed.

Overall orders for durable goods, items ranging from toasters to aircraft that are meant to last three years or more, declined 1.1% in September after edging up a revised 0.3% in the prior month.

Last month, orders for computers and electronic products dropped 0.9% while electrical equipment, appliances and components rose 0.9%. Orders for fabricated metal products fell 1.5%. Orders for machinery advanced 0.2% and there were also gains in orders for primary metals.

Orders for transportation equipment dropped 2.7% after rising 0.2% in August. Motor vehicles and parts orders decreased 1.6% last month. Orders for non-defense aircraft and parts slumped 11.8%.

(Reporting by Lindsay Dunsmuir; Editing by Andrea Ricci)