WASHINGTON New orders for key U.S.-manufactured capital goods unexpectedly rose in May, but the prior month's data was revised down, indicating that businesses remained cautious about new capital investment because of higher borrowing costs and an uncertain economic outlook.

Orders for non-defense capital goods excluding aircraft, a closely watched proxy for business spending plans, increased 0.7% last month, the Commerce Department said on Tuesday. Data for April was revised lower to show these so-called core capital goods rising 0.6% instead of 1.3% as previously reported.

Economists polled by Reuters had forecast core capital goods orders would be unchanged.

The Federal Reserve has raised its policy rate by 500 basis since March 2022. The U.S. central bank has signaled two more rate hikes this year to cool inflation. Most economists expect a recession by the end of the year.

(Reporting by Lucia Mutikani; Editing by Chizu Nomiyama)