New orders at U.S. factories fell by a smaller-than-expected 0.6 percent in July, lead by sharp declines in orders for transportation and defense goods.

Wall Street analysts polled by Reuters were expecting a 1.0 percent decline in factory orders.

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After stripping out transportation, factory orders increased 1.1 percent in July.

Excluding defense, they declined 0.2 percent.

Orders for transportation equipment fell 10.1 percent. In that category, orders for motor vehicle bodies, parts and trailers gained 2.2 percent, while orders for nondefense aircraft and parts fell 10.6 percent.

Machinery orders, one of the bigger categories in the report, rose 1.5 percent, while orders for computers and electronic components, another big category, increased 5.9 percent.

Gains in nondefense capital goods orders excluding aircraft, seen by economists as a guide to the health of U.S. business spending, rose 1.6 percent, the biggest gain since March. Orders for defense capital goods fell 16.4 percent during the month.

Total unfilled orders for durable goods, or items meant to last more than three years, rose 1.3 percent. Durable goods inventories rose 1.0 percent

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