Nov. 2 (Bloomberg) -- Orders to U.S. factories unexpectedly rose in September, suggesting companies remain confident the economy will continue to grow.

Bookings increased 0.2 percent after a revised 3.5 percent drop the prior month, the Commerce Department said today in Washington. Excluding transportation equipment, such as cars and airplanes, demand increased 1.4 percent.

The report showed sales and orders for equipment, such as computers and machinery, rose more than previously estimated. Combined with Labor Department figures that showed a rebound in employment last month, the reports suggest business spending will help cushion the economy from the deepening housing slump.

``Businesses modestly picked up spending while they take stock of volatile financial markets,'' said Tim Quinlan, an economic analyst at Wachovia Corp. in Charlotte, North Carolina.

Factory orders were forecast to drop 0.7 percent, after a previously reported 3.3 percent decline the prior month, according to the median estimate of 65 economists surveyed by Bloomberg News. Projections ranged from 1.5 percent drop to a gain of 1.7 percent.

American employers added almost twice as many jobs as forecast in October, the Labor report also showed. Payrolls climbed by 166,000 after a 96,000 gain in September, helping steer the economy clear of recession even as the housing recession worsens.

Durables Orders

The Commerce report showed orders for durable goods, which make up just over half of total factory demand, fell 1.7 percent, the same as estimated last week, after a 5.3 percent decline the prior month.

The decline was led by a 34 percent plunge in demand for military equipment that overshadowed increases in business investment.

Today's figures showed factory orders for civilian aircraft increased 18 percent and bookings for auto assemblies and parts fell 1.1 percent.

Boeing Co., the world's second-biggest commercial-airplane maker, said it got orders for 132 planes in September, up from 75 the prior month. The company's third quarter earnings jumped 61 percent as orders from Asia and the Middle East surged.

Today's revised figures showed business investment plans accelerated in September.

Investment Plans

Bookings for capital goods excluding aircraft and military equipment, a measure of future business investment, rose 0.6 percent after a 0.1 percent gain in August. Commerce previously estimated a 0.4 percent increase.

Shipments of those goods, used to calculate gross domestic product, increased 1.1 percent after rising 1.9 percent.

Gains in both commercial construction projects and purchases of equipment and software contributed to a 7.9 percent increase in business investment, Commerce reported earlier this week. A 5.9 percent rise in spending on new equipment was the biggest since the first quarter of 2006.

Today's report also showed bookings for non-durable goods, including food, petroleum and chemicals, jumped 2.1 percent.

Factory inventories jumped 0.6 percent, the most in a year, and manufacturers had enough goods on hand to last 1.24 months, the same as the prior month.

Concern about a broader economic slowdown led the Federal Reserve this week to cut the benchmark interest rate for a second time in as many months. The outlook is ``uncertain'' even after ``solid'' growth last quarter, policy makers said in a statement.

In a sign that automakers continue to struggle, General Motors Corp., Ford Motor Co. and Chrysler LLC announced they would trim production in October.

Some companies are faring better. Cameron International Corp., the third-largest U.S. maker of oilfield equipment, yesterday said third-quarter profit rose 69 percent as producers ordered more gear for exploration.

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

Last Updated: November 2, 2007 11:32 EDT