WASHINGTON, Feb 24 (Reuters) New orders for U.S.-made durable goods plunged 10.2 per cent in January, the biggest drop in 5-1/2 years, as non-defense aircraft orders posted their largest fall since December 1998, a government report showed on Friday.
Outside transportation, orders for expensive items built to last three years or more posted their third straight monthly gain, rising a slightly larger-than-expected 0.6 per cent, the Commerce Department report showed.
Economists had forecast the often volatile durable goods measure to drop a much smaller 1 per cent, after Boeing orders hit a three-month low of 39 units in January, down from 204 in December.
Wall Street had pegged orders excluding transportation to rise 0.5 per cent.
U.S. Treasury prices ticked up and the dollar weakened after the surprisingly large durable goods decline. Stock futures fell but traders were chiefly focused on an explosion and shooting at a Saudi Arabian oil facility.
''The headline was a lot weaker than expected but if you look at the underlying numbers, basically the weakness was entirely in the transportation sector and relates to a drop in Boeing orders,'' said Ronald Simpson, managing director of global currency analysis at Action Economics LLC in Dobbs Ferry, New York.
December orders were revised up to a 2.5 per cent gain from the originally reported 1.3 per cent advance.
The steep drop in January was driven by declines in capital goods and transportation equipment orders.
Capital goods orders tumbled 23.1 per cent, the biggest slide since July 2000, on a record 20 per cent decline in non-defense capital goods orders and a 64.3 per cent fall in defense capital goods orders.
Non-defense capital goods orders excluding aircraft, seen on Wall Street as a proxy for business spending, edged down 0.4 per cent, the report showed.
New orders for transportation equipment slid 31.2 per cent, as motor vehicles and parts orders fell 3.3 per cent and defense aircraft and parts fell 22 per cent. Non-defense aircraft and parts orders dived 68.2 per cent, the biggest drop since an 80.1 per cent decline in December 1998, the department said.
Unfilled orders, which can signal future strength of factory production, fell 0.8 per cent, the largest drop since a decline of 1.2 per cent in October 2002.
REUTERS SD PM1933