Driven by a sharp drop in defense orders, new factory orders fell 1.4 percent in February, the largest decline since September 1984, the Commerce Department reported yesterday.
The decline also was spurred, in part, by a 10 percent drop in the value of petroleum-product orders largely because of falling global oil prices. Excluding defense orders, which fell by 30 percent, factory orders rose 0.2 percent in February.
The February drop in total factory orders followed a 0.1 percent increase in January, Commerce said.
In a separate report, Commerce said that construction spending rose 1.2 percent in February, following a 1.3 percent increase in January. Construction of single-family homes rose 2 percent, and industrial construction increased 10 percent. Construction of office buildings, which had increased considerably in recent years, has reached a plateau in the last three months, Commerce said.
Economists said yesterday that the decline in factory orders does not suggest any weakness in the economy, because defense orders often are very volatile. The factory-orders report followed reports of a sharp rise in the government's leading economic index last week and of strong gains in employment in February.
Economists also said that the decline in the value of the dollar since February 1985 should help to improve orders soon by diverting more business away from foreign suppliers to domestic ones.
"New orders are down and durable goods orders are down, which on the surface looks like a poor report," said Robert Ortner, Commerce Department chief economist. "The fact that the decline was focused in the defense area should not cause too much concern, because those orders bounce around month by month. They're just as likely to be up next month."
"The most noteworthy development is the large increase in orders for computers and office equipment," said Jerry Jasinowski, chief economist for the National Association of Manufacturers. "In this respect, the first half of 1986 will reflect a skewed pattern of economic activity, with capital spending showing unusually strong gains, while the preliminary cuts in government spending under the Gramm-Rudman bill actually slow the economy."
New orders for durable goods declined 1.2 percent, and orders for nondurables fell 1.6 percent for the steepest monthly decline in a year, Commerce said.
Excluding defense, durable-goods orders rose 1.9 percent in February. Orders rose for nonelectrical machinery, due largely to sharp increases in office and computing-equipment orders. Orders declined for transportation equipment.
In nondurables, petroleum-product orders fell $1.6 billion and food products declined $700 million.
Inventories fell 0.3 percent, the eighth consecutive monthly decline.
"Manufacturers don't want to build inventories," Ortner said. "With inflation easing, manufacturers have very little incentive to hold excess inventories to protect against future price increases, although they may find, as economic activity picks up this year, they may have to add to their inventories and add to the faster growth of the economy in the process."