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Factory orders post largest fall since recession

WASHINGTON (Reuters) - Demand for U.S. factory goods in August fell by the most since January 2009, but the second straight month of gains in orders outside transportation hinted at a less rapid loss of momentum in manufacturing activity.

The Commerce Department said new orders for manufactured goods tumbled 5.2 percent - the biggest drop since the recession - dragged down by a slump in demand for transportation equipment that was telegraphed in last week's report on orders for long-lasting manufactured goods.

Factory orders had risen 2.8 percent in July and economists had expected them to drop 5.8 percent in August. Excluding transportation, orders rose 0.7 percent in August after rising by the same margin the prior month.

Manufacturing has carried the economic recovery and while activity has cooled significantly in recent months, there are so far little signs of a hard landing.

The Institute for Supply Management's index of national manufacturing activity last month climbed above the 50 mark - which separates contraction from expansion - after three straight months below 50.

The Commerce Department report showed orders for transportation equipment tumbled 34.9 percent in August on sharply weak orders for civilian and defense aircraft.

New orders for civilian aircraft sank 101.8 percent, which includes cancellations, after rising 51.1 percent the prior month. Aircraft orders are extremely volatile from month to month. Defense aircraft orders fell 8.1 percent after declining 11.4 percent in July.

Orders for motor vehicles and parts were also a drag, falling 14.9 percent after surging 20.5 percent in July. Orders are likely to rebound in September after auto sales touched their highest level since March 2008.

Shipments fell in August after rising in July. With both orders and shipments declining in August, inventories rose 0.6 percent after advancing by the same margin the prior month. Unfilled orders at U.S. factories fell after two straight months of gains.

The department said the plunge in orders for durable goods - manufactured products expected to last three years or more - was unrevised at 13.2 percent.

Orders for non-defense capital goods excluding aircraft -- seen as a measure of business confidence and spending plans - rose 1.1 percent in August. (Reporting By Lucia Mutikani; Editing by Neil Stempleman)

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