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Posted: 6:34 AM- Orders placed with U.S. factories for durable goods fell more than forecast in January as excess inventories prompted companies to limit spending.

The 7.8 percent decline reflected less demand for commercial aircraft and the biggest drop in business equipment orders in three years, the Commerce Department said today in Washington. Orders excluding transportation equipment dropped 3.1 percent, the most since July 2005.

The figures suggest reluctance among companies to invest carried into 2007 after fourth-quarter spending on equipment fell by the most in four years. Excess inventories at auto dealers and construction-equipment makers may restrain production early this year, Federal Reserve Chairman Ben S. Bernanke told Congress earlier this month.

"Orders started the year with a whimper, and this will tend to keep business investment subdued in the first quarter," Nigel Gault, director of U.S. research at Global Insight In. in Lexington, Massachusetts, said before the report.

Durables orders rose 2.8 percent in December. Economists had forecast a 3 percent drop in January, according to the median estimate in a Bloomberg News survey, after a previously reported 2.9 percent gain for December. Estimates ranged from a decline of 8.3 percent to a 1 percent rise.

Excluding transportation equipment, orders were forecast to fall 0.2 percent. Excluding military equipment, orders fell a record 7.8 percent last month, while inventories of all durables rose 0.3 percent.

Orders for non-defense capital goods excluding aircraft, a proxy for future business investment, slumped 6 percent, the biggest decrease since January 2004. Unfilled orders for such goods rose 0.9 percent last month.

Fewer Capital Goods Shipments

Shipments of those items, used in calculating gross domestic product, dropped 2.7 percent after falling 0.8 percent.

Spending on equipment and software fell in the fourth quarter by the most since the final three months of 2002, according to the Commerce Department's Jan. 31 report on gross domestic product.

Aircraft orders slumped 60 percent in January after rising 31 percent a month earlier, today's report showed. Chicago-based Boeing Co. received 13 orders in January, down from 212 in December, according to information on the company's Web site.

The economy expanded at 3.5 percent annual pace in the third quarter, based on the government's initial estimate last month. That figure is forecast to be revised lower in a government report due tomorrow after data released Feb. 14 showed companies added less to inventories in December than many economists had estimated.

'Weaker Sales'

"We are going to see weaker sales in comparison to a year ago in the United States, particularly in housing-related sectors," James Owens, chief executive officer of Peoria, Illinois-based Caterpillar Inc., said in an interview Feb. 15. "There is a slowdown in U.S. GDP, definitely."

Orders for machinery dropped 9.3 percent, the most since January 2004, after rising 7.8 percent, today's report said.

Orders for computers and related products declined 5 percent after falling 3.4 percent. Some companies may have held off on new information technology purchases pending the installment of Vista, Microsoft Corp.'s new operating system, economists said.

Communications equipment orders dropped 19.1 percent last month, the most since October. Orders for primary metals and motor vehicles also declined in January.

Motor Vehicles

Motor vehicle and parts bookings fell 5.1 percent in January after rising 5.3 percent in December, today's report showed.

Sales at Ford Motor Co. fell 19 percent in January, and they dropped 17 percent at General Motors Corp., prompting a deeper cut in GM's North American production. Last year, GM and Ford announced plans to close a combined 28 plants and other facilities in North America as they align their production base with shrinking consumer demand.

--With reporting by Jeff Green in Southfield, Michigan, and Chris Fournier in Montreal.