Factory orders drop more than expected in September

WASHINGTON -- Factory orders dropped for a second straight month in September as businesses cut purchases of steel, computers and other equipment, the government said Tuesday.

The Commerce Department said factory orders fell 2.5% from August, much worse than the 0.7% drop analysts expected. That's on top of a revised 4.3% decline in August.

Excluding autos and aircraft, orders fell 3.7%, steepest drop since 1992, when the department began tracking secto changes.

Orders for non-defense capital goods excluding aircraft, considered a good indication of business investment plans, fell 1.5%. That follows a 2.3% drop in August and indicates companies are cutting investments, likely due to the economic downturn and difficulty getting credit.

The Commerce Department said last week that the economy contracted at an annual rate of 0.3% in the third quarter. Consumer spending fell 3.1% in the July-September period, first drop in 17 years and steepest fall since 1980.

Businesses also cut back, reducing their spending on equipment at a 5.5% annual rate. Orders for autos and auto parts recovered somewhat, increasing by 2.7%, after plummeting 10.6% in August, the department said.

Still, automakers had two disastrous months in September and October. The reluctance of banks to lend has hurt automakers by making it difficult for potential buyers to get auto loans.

According to October sales data released Monday, sales sank 45% at General Motors, 30% at Ford, 25% at Honda and 23% at Toyota.

Ford, Toyota, Chrysler and Nissan reported sales drops of more than 30% in September.

Meanwhile, a private trade group said Monday that its index of U.S. manufacturing activity fell sharply in October to its lowest level in 26 years.