Durable goods orders drop 2.4%

New orders for long-lasting U.S. manufactured goods fell unexpectedly in August, dropping by their biggest margin in seven months, following a plunge in commercial aircraft orders, the government reported Friday.

The Commerce Department said durable goods orders tumbled 2.4%, the largest decline since January, after rising by a revised 4.8% in July. New orders for July were previously reported to have increased 5.1%.

Analysts polled by Reuters forecast orders rising 0.5% in August. Compared with the same period last year, new orders were down 24.9%.

Durable goods orders are a leading indicator of manufacturing activity, which in turn provides a good measure for overall business health.

U.S. stock index futures fell on the report, while government bond prices rose.

"This is a bit of a reality check for people. It means there is more to be done and we are not out of the woods yet," said Doug Roberts, chief investment strategist at Channel Capital Research.com in Shrewsbury, N.J.

The data coming on the heels of areport on Thursday that showed a surprise drop in existing home sales in August was a reminder that recovery from the worst recession since the 1930s would be uneven. Doubts linger over its sustainability as consumer spending remains constrained by a weak labor market.
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Non-defense aircraft and new parts orders plunged 42.2% in August, likely reflecting a drop in civilian aircraft orders received by Boeing (BA, Fortune 500). New orders for transportation equipment dropped 9.3%.

New durable goods orders excluding transportation were flat in August, after rising for three straight months, the department said. Analysts polled by Reuters had expected new orders, excluding transportation to rise 1%, after a 1.1% increase in July.

Non-defense capital goods orders excluding aircraft, a closely watched proxy for business spending, unexpectedly fell 0.4% in August. Analysts polled by Reuters had expected core capital goods to increase 1.3%.

The prior month was revised to show a 1.3% drop, previously reported as a 0.3% fall.

Durable goods inventories fell 1.3% in August after dropping 1.1% the prior month and declining for eight consecutive months. Shipments fell 1.4% after two months of straight gains. Shipments rose 2.2% in July.