Biggest durable orders drop in 2 years

Grim economic outlook

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NEW YORK (CNNMoney.com) -- Orders for durable goods declined sharply in October, marking the largest percent decrease in two years, the government reported Wednesday.

Orders in the Commerce Department report fell 6.2% to $193 billion, a much steeper drop than the 2.5% decrease expected by a survey of economists by Briefing.com.

It was the largest decrease since October 2006, when orders fell 8.3% decrease. Orders have now fallen for three straight months because September was revised to a 0.2% decline from a 0.8% increase.

"There's almost nothing positive here," said Sam Bullard, economist at Wachovia. "The weakness was broad-based. That's the consumer pulling back on big-ticket items."

The only increase in new orders was communications equipment, up 7.7%

Nondefense, nonaircraft capital goods - considered an indicator of business spending - decreased 4%, following two consecutive decreases.

That number is "a good proxy for business equipment spending," Bullard said. "With that decreasing over the past 3 months, it points toward significant weakness."

That downward trend should persist over all of next year, Bullard added, predicting it would not recover until the early part of 2010.

New orders on transportation equipment plummeted 11.1%. This shows businesses are pulling back, Bullard said, noting that the recent Boeing strike likely affected domestic orders.

Excluding transportation, new orders decreased 4.4%. Excluding defense, they decreased 4.6%.

Shipments of manufactured durable goods decreased 2.4% to $202.9 billion.

Unfilled orders were down for the first time in 26 months, at a decrease of $4.6 billion, or 0.6%.

Inventories of manufactured durable goods, up 15 of the last 16 months, increased $1.4 billion or 0.4%. This is the highest level since 1992, according to the report.

"Eventually it will turn around, but these numbers are down so low," Bullard said. "At this point, we're not quite at the 2001 recession. But the numbers will get even lower, and they will reflect the more severe contractions of the mid-70s and early 80s recession."

Durable orders measures the dollar volume of orders, shipments and unfilled orders of goods built to last three years or more. The report is viewed as an indicator of manufacturing activity.