New orders for manufactured goods fell 1.1 percent in October, the second consecutive monthly decline, the Commerce Department reported yesterday.
Most of the decline in new orders, an important indicator of future business activity, was attributed to a 26.3 percent drop in orders for defense goods in October. Defense orders dropped 21.1 percent in September.
Excluding defense, new orders were virtually unchanged in October, Commerce said. New orders measure the demand from factories for goods destined in the future both for businesses and consumers.
Meanwhile, manufacturers' inventories declined 0.7 percent in October, the largest one-month decline since March 1983. It was also the sixth decline in the last seven months, suggesting that businesses are trying to prevent overstocking their shelves and subsequently reducing production. The traditional way recessions begin is when inventories build up and production stops, economists said.
New orders fell 0.7 percent in September and rose 1.5 percent in August.
"Most of this report without defense isn't that bad," said Robert Ortner, Commerce Department chief economist. "The one disturbing area is a sharp drop in nondefense capital goods orders. If there's one thing we don't need, it's a decline in capital spending. Obviously, it has slowed down this year."
Ortner said that businesses are waiting for demand to pick up before they increase orders for new goods. "They need steady, strong growth in final demand," Ortner said. "Business firms may not be convinced yet that we have pulled out of the first half doldrums" when the economy grew at a 1.1 percent rate.
Economists generally are not concerned about the drop in defense orders because Reagan administration policies are expected to keep those orders high in the long run. This category tends to be very volatile, economists said.
"I have not heard concern anywhere that defense is about to go into a recession," Ortner said. "Everyone is confident that defense orders will continue to grow."
New orders for durable goods, excluding defense and for nondurable goods, showed little change from September, Commerce said. Durable goods are those items that are expected to last three years or more.
Orders increased for fabricated and primary metals, furniture, lumber, instruments and stone, clay and glass. Orders for nondurables that rose were textiles, apparel, petroleum and rubber and plastics. Orders declined for paper, printing and publishing and tobacco goods.
New orders also rose 2.4 percent for home goods and apparel, but dropped 0.8 percent for other consumer staples. Automotive equipment orders rose 1.3 percent following a 0.6 percent drop in September.