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Durable Goods Orders Plunge in September

Orders for U.S. durable goods plunged in September, hurt by weak demand for transport equipment and declines in many other sectors, the government said Friday in a report likely to raise new doubts about the economic recovery.

Orders for durable goods — costly manufactured items intended to last three years or more — tumbled 5.9 percent in September after falling just 0.6 percent in August, the Commerce Department said. The number was far worse than analyst expectations of a 1.8 percent decline and was the largest drop since November last year.

"This is sharply worse than market consensus. The headline was dragged down heavily by commercial and aircraft categories," said Andrew Delano, currency strategist at IDEAGlobal, New York. "Airlines was well expected, but communications was a broadside to the market."

Treasury bonds rallied on the number, erasing early losses as traders speculated that Federal Reserve policymakers may need to eventually cut interest rates to shore up confidence.

Demand for goods fell across the board. Orders for motor vehicles and parts fell 2.8 percent while non-defense aircraft and parts plummeted 46.3 percent. U.S. aircraft giant Boeing had only 3 orders for commercial planes in September, down sharply from 13 in August.

Orders for goods excluding transportation were down only 1.0 percent.

The report also showed the long-awaited business investment recovery has yet to get underway. Orders for computer and electronic equipment fell 6.0 percent and demand for communications equipment tumbled 52.0 percent, the largest drop on record.

Machinery orders declined 1.2 percent and non-defense capital goods orders were down 12.6 percent, the largest drop since December 1997.

"Basically the business hesitation that started in June, has got worse. The business sector is already preparing themselves for a weaker outlook," said Ram Bhagavatula, chief economist at Royal Bank of Scotland Financial Markets in New York.

Some of the reticence about business investment has been tied to uncertainty over a potential war with Iraq.

Other recent data have also raised concerns the economy could tip back into recession. The Conference Board's leading indicators for September, out on Monday, logged their fourth straight monthly decline.

The durable goods report is among a handful of statistics that may prove pivotal at the Nov. 6 meeting of Federal Reserve policy makers. Private sector analysts have been split on whether the Fed will cut interest rates from 40-year lows.