Dec. 27 (Bloomberg) -- Orders for U.S. durable goods rose less than forecast in November, restrained by a drop in defense procurement and waning demand for machinery.

The 0.1 percent increase in appetite for cars, aircraft and other items made to last several years followed a revised 0.4 percent drop in October, the Commerce Department said today in Washington. Excluding transportation, orders fell 0.7 percent.

Treasury notes rallied and the dollar fell after the report, which suggests the housing recession is spreading to other parts of the economy. Tougher lending standards, bloated inventories and slowing sales are causing some companies to limit investment, analysts said.

``The economy will be a bit slower as we head into the new year,'' said Michael Gregory, a senior economist at BMO Nesbitt Burns in Toronto. ``Cautiousness is starting to move up in terms on business spending.''

Separate figures from the Labor Department showed jobless claims unexpectedly rose last week by 1,000 to 349,000. The number of people continuing to collect unemployment benefits jumped by 75,000 to 2.713 million, the highest in more than two years, in the week that ended Dec. 15.

Another report showed consumer confidence rose in December. The Conference Board's index increased to 88.6, the first gain in five months, from a revised 87.8 in November, the New York- based group said today. The measure averaged 105.9 last year.

Economists forecast durable goods orders would increase 2 percent in November, according to the median of 67 estimates in a Bloomberg News survey. Excluding transportation equipment, orders were projected to rise 0.5 percent.

Military Orders

Orders for military gear dropped 24 percent, led by a drop in aircraft demand. Those figures are considered volatile, so economists prefer to look at underlying trends. Bookings excluding defense equipment rose 1.2 percent.

Demand for capital goods also softened, suggesting business investment will be a drag on economic growth. Orders for non- defense capital goods excluding aircraft, a proxy for future business investment, fell 0.4 percent after a 2.9 percent decrease in October that was larger than previously estimated. Shipments of those items, used in calculating gross domestic product, increased 0.2 percent after dropping a larger-than- previously-estimated 1.2 percent in October.

Orders for transportation equipment rose 1.9 percent, led by a 21 percent jump in commercial aircraft demand. Auto bookings also rose.

Boeing Leads Manufacturers

Boeing Co. orders more than tripled in November, to 177 planes, from the prior month. Bookings at the world's second- largest commercial plane maker have averaged 122 a month over the last three months.

Other manufacturers aren't faring as well as the housing slump deepens. Illinois Tool Works Inc., the maker of Duo-Fast nail guns, and Black & Decker Corp., the largest U.S. power-tool maker, reduced profit forecasts this month as sales in North America slowed.

Retailers have placed fewer orders with Black & Decker this quarter because consumers are buying fewer tools for home remodeling projects as the housing slump enters its third year.

``We are seeing the U.S. economy slowing,'' said Alexander M. Cutler, chief executive officer at Eaton Corp., in a Dec. 21 interview. There is the ``potential that industrial production could move to flat to slightly negative in the first quarter.''

FedEx Profit

Even service businesses are feeling the pinch. FedEx Corp., the second-largest U.S. package-delivery company, said last week that quarterly profit fell 6.3 percent as a slowing economy cut demand for freight shipments and fuel spending rose.

The Memphis, Tennessee-based company also lowered its capital spending forecast for the full year by 11 percent, to $3.1 billion, and said additional reductions are ``possible'' as executives review investment plans.

Regional reports have shown the manufacturing outlook has dimmed. The New York Federal Reserve Bank's general economic index fell more than forecast this month and expectations for orders six months from now were the lowest in six years. The Philadelphia Fed's business gauge contracted for the first time in more than two years and a measure from the Richmond Fed shrank for the second time in three months.

Role of Exports

Faster growth outside the U.S. has led to a surge in exports that's helped American companies weather the slowdown in domestic demand, economists said. Shipments to overseas buyers rose 0.9 percent to a record in October, the Commerce Department said earlier this month.

General Electric Co., the world's biggest maker of electricity-generating equipment, this month won an order for 28 Jenbacher natural-gas engines, the largest ever, to supply power in rural Bangladesh.

Of the 177 plane orders received by Boeing in November, 46 were from customers abroad compared with 3 from U.S. companies. The Chicago-based company didn't identify the origin of the remaining 128 bookings.

-- With reporting from Courtney Dentch in New York and Tony Capaccio in Washington. Editor: Carlos Torres, Mark Rohner

To contact the report on this story: Courtney Schlisserman in Washington Cschlisserma@bloomberg.net

Last Updated: December 27, 2007 10:10 EST