Nov. 4 (Bloomberg) -- U.S. factory orders fell in September as the value of energy-related bookings plunged, while demand for durable goods excluding cars and aircraft tumbled by a record.

Total orders declined 2.5 percent after a 4.3 percent drop in August, the Commerce Department said today in Washington. Non- durables fell 5.5 percent, the most in two years. A jump in the volatile category for transportation equipment spurred a gain in bookings for items made to last several years.

``The economy hit an air pocket in late September when the credit markets melted down,'' Mark Vitner, a senior economist at Wachovia Corp. in Charlotte, North Carolina, said in a Bloomberg Television interview. ``We are likely to see considerable weakness in new orders going forward'' because manufacturing purchasing-manager surveys ``fell off a cliff'' in October.

A record share of U.S. banks has tightened terms for business loans, a Federal Reserve report showed yesterday, making it harder for companies to finance capital spending. Economies in Europe and Japan are also now contracting, making it likely that the record American export boom will fade.

U.S. Treasuries were little changed after the report, with benchmark 10-year note yields at 3.90 percent at 10:35 a.m. in New York. The Standard & Poor's 500 Stock Index rose 3 percent to 995.28 on optimism a retreat in money-market rates will help unblock lending.

Election Impact

The economy, which contracted in the third quarter by the most since the 2001 recession, has become the central issue for Americans as the presidential election draws to a close today.

Factory orders were forecast to fall 0.8 percent, after a previously reported 4 percent drop the prior month, according to the median estimate of 61 economists surveyed by Bloomberg News. Projections ranged from a decline of 3.4 percent to an increase of 1.2 percent.

Bookings for durable goods, those meant to last at least three years, climbed 0.9 percent as aircraft and autos rebounded.

The drop in bookings for non-durable goods was the biggest since September 2006. Orders for petroleum and coal products plunged 17 percent. Demand for chemicals decreased 4.2 percent, in part, also reflecting falling commodity costs.

Prices for oil, copper and wheat have dropped by more than half since reaching records this year. Crude oil for December delivery traded at about $65 a barrel yesterday on the New York Mercantile Exchange.

Record Drop

Orders for durable goods, which make up just over half of total factory demand, increased 0.9 percent. Excluding demand for transportation equipment, such as aircraft and autos, orders declined 3.7 percent, the most since records began in 1992.

Civilian aircraft orders increased 30 percent, and those for autos rose 2.7 percent.

Boeing Co., the world's second-biggest commercial-airplane maker, said it got 41 orders for aircraft in September, up from 38 in August. Still, a strike by 27,000 machinists idled the Chicago-based company's factories for eight weeks and cut profit by about $10.3 million a day. Machinists began returning to work on Nov. 2 after accepting a contract with 15 percent raises.

Auto demand likely won't hold up. Ford Motor Co., the second-biggest U.S. automaker, yesterday said its U.S. sales fell 30 percent in October, and General Motors Corp., its bigger rival, reported a 45 percent plunge.

Inventories Tumble

Factory inventories decreased 0.7 percent, the biggest decline in five years. Still, the drop in demand caused the inventory-to-sales ratio to rise to 1.29 months from 1.26 months in August.

Falling demand is hurting manufacturers such as Cummins Inc., the maker of more than a third of North America's heavy- duty trucks engines, which cut its full-year sales projection.

``The company is experiencing significant declines in some of its consumer markets as the U.S. economy continues to deteriorate,'' Cummins said in a statement on Oct. 31, adding that it faces ``signs of economic weakness in Europe.''

To contact the reporter on this story: Shobhana Chandra in Washington schandra1@bloomberg.net

Last Updated: November 4, 2008 10:49 EST