Orders for Durable Goods Plunge 5.4% : Commerce: U.S. says plunge of key indicator of economic activity in January was the largest since December of 1974.

Orders to U.S. factories for manufactured goods plunged 5.4% in January, the largest one-month decline in nearly 16 years, the government said today.

The Commerce Department said orders for both durable and non-durable goods totaled a seasonally adjusted $227.7 billion after gains of 0.4% in December and 2.4% in November.

It was the steepest decline since a 7% drop in December, 1974. In addition, the December gain was revised downward to 0.4% from 1.9% reported last month.

Durable goods orders plunged 10.5% to a seasonally adjusted $117.8 billion. It was the biggest drop in 32 years of record-keeping and broke the previous record drop of 9.2% that was set in February, 1982, during the last recession.

Orders for durable goods--big-ticket items expected to last more than three years and often financed by loans--were held down for much of 1989 by the Federal Reserve’s anti-inflation, high-interest policies.

However, orders picked up late last fall, jumping 4.8% in November and 1.2% in December and prompting many analysts to conclude the economy’s manufacturing sector was stabilizing.

But the optimism paled after last week’s initial report on durable goods orders, with some expressing fears that further weakness in manufacturing could lead to more job layoffs, sagging consumer confidence and cutbacks in consumer spending, which accounts for two-thirds of all economic activity.

“The decline in durable goods was mostly in transportation equipment, down 28.8%,” the department said. That was a revision from the 27.6% drop reported last week.

“Aircraft and parts, motor vehicles and parts and shipbuilding and tanks all declined,” the department said.

Excluding transportation, orders were off 1%.

In the key category of non-defense capital goods, a barometer of business investment plans, orders fell 14.2% in January to $38.1 billion, reversing a 14.1% gain in December.

In addition to new orders, the Commerce Department said shipments of manufactured goods dropped 1.9% in January to $226.6 billion. Inventories rose 0.7% to $373.9 billion, nearly offsetting a 0.5% decrease in December.

If inventories increase without a corresponding gain in new orders, it could signal production cutbacks as factories attempt to get rid of goods stored on shelves and back lots.

Non-durable orders were up 0.8% to $109.9 billion after declining 0.5% in December and 0.2% in November.

The volatile defense orders fell for the second consecutive month, down 28.8% to $6.95 billion after declining a revised 13.3% in December. The December figure originally was reported to be 11.6%.

Excluding defense, factory orders were off 4.4%.

Among the durable goods orders, electrical machinery was down 15.5% to $19.2 billion, most of which was in communications equipment.