New orders for manufactured durable goods last month rose by 0.3 percent, the latest indication that business activity is picking up and may sustain the economic recovery.

The increase in orders would have risen 3.5 percent if not for the 37.4 percent decline in defense activity, which tends to be volatile, the Commerce Department said. It was also an improvement over the 2.9 percent decline in new orders for durables reported in July.

Despite the drop in July, "the trend is still good," said Commerce Department chief economist Robert Ortner. The value of new orders was $88.5 billion last month, just below the record $90.9 billion reported in June.

Another indicator of increased business activity is the amount of backlogged orders businesses accummulate, which increased 0.4 percent in August to $309.3 billion. It was the eighth time in the last nine months that backlogs have increased, although it was the smallest increase since the 0.1 percent growth in March.

New orders in the transportation industry rose 5.1 percent after dropping 12.6 percent in July. Gains in the steel industry were reflected in a 3.4 percent increase in new orders for primary metals. However, new orders for machinery dropped 2.6 percent last month, offsetting a 2.3 percent increase in July.

The increase in the backlog of orders for durable manufacturered goods was concentrated in the primary metals and machinery, particularly electrical machinery, Commerce said.

Shipments of manufactured durable goods last month rose 1.7 percent to $87.1 billion, the ninth increase in 10 months.

In a separate report, the Labor Department said initial claims for state unemployment insurance dropped to 372,000 in the week ended Sept. 10 from 408,000 the previous week. The number of people collecting state unemployment benefits fell to 2.9 million in the week ended Sept. 3 from 3.1 million the previous week.