March 28 (Bloomberg) -- U.S. durable-goods orders excluding transportation unexpectedly fell for a second month in February, jeopardizing the Federal Reserve's forecast for a recovery in business spending.

The 0.1 percent drop followed a 4.0 percent slide a month earlier, the Commerce Department said in Washington today. None of the 35 economists surveyed by Bloomberg News predicted the decline. Orders for all durable goods -- those made to last several years -- rose 2.5 percent, less than analysts anticipated.

Companies are reluctant to buy new machinery and equipment until inventories are reduced, suggesting the economy may slow further, economists said. Economists at HSBC Securities USA Inc. and Morgan Stanley were among those to cut forecasts for first- quarter economic growth after today's report.

``This raises a major warning flag for the economy,'' said Douglas Porter, deputy chief economist at BMO Capital Markets in Toronto. ``It casts some serious doubt on what had been a leader for the economy in the last year or two.''

Porter's forecast for a gain of 0.4 percent in orders excluding transportation was the lowest among economists surveyed before the report. Orders were estimated to rise 1.8 percent. Overall demand was predicted to be up 3.5 percent from January.

Fed Chairman Ben S. Bernanke told lawmakers today that he's standing by his forecast for ``moderate'' economic growth even though ``uncertainties'' have increased.

`Moderate Pace'

``The economy appears likely to continue to expand at a moderate pace over coming quarters,'' he told the Joint Economic Committee of Congress. ``However, the uncertainties around the outlook have increased somewhat in recent weeks.''

Orders for non-defense capital goods excluding aircraft, a proxy for future business investment, fell 1.2 percent. Shipments of those items, used in calculating gross domestic product, rose 1.2 percent after falling 3.3 percent. Unfilled orders for such goods decreased 0.2 percent last month.

Orders for machinery, metals, electrical equipment and appliances, all fell last month. Demand for computers and motor vehicles improved.

``This report appears to justify the growing anxiety that declines in capital spending -- along with the on-going slump in the housing sector -- could jeopardize the economic expansion,'' said David Resler, chief economist at Nomura Securities International Inc. in New York. ``The `possibility' of recession by year-end looks somewhat less remote than when Mr. Greenspan first asserted such risk a month ago.''

Greenspan

Former Fed Chairman Alan Greenspan earlier this month said there's a ``one-third probability'' of a U.S. recession this year and the current expansion won't have the staying power of its decade-long predecessor.

The yield on the 10-year note rose to 4.61 percent at 4:08 p.m. in New York, from 4.60 percent late yesterday. The U.S. stock market extended this week's losses after Bernanke said inflation remains his main concern even amid growing evidence the economy is slowing.

Today's report showed orders outside of military equipment rose 2.5 percent last month. Inventories of all durable goods increased 0.2 percent.

Aircraft orders jumped 88 percent in February after dropping 60 percent a month earlier, today's report showed. Chicago-based Boeing Co. received 57 aircraft orders in February, up from 13 in January, according to its Web site.

Economists often focus on the durable-goods figure excluding transportation because orders for aircraft and automobiles tend to be volatile from month to month.

Investment Slide

A slide in capital investment, together with corporate efforts to trim bloated inventories, contributed to a reduction in the government's estimate of last quarter's economic growth to a 2.2 percent annual rate from 3.5 percent.

Corporate purchases of equipment and software declined at a 3.2 percent annual rate last quarter, the most since the final three months of 2002.

``Despite the recent weak readings, we expect business investment in equipment and software to grow at a moderate pace this year,'' Fed Chairman Bernanke said today in testimony before Congress. High profits, low interest rates and rising sales are likely to support corporate spending he said.

Other reports this month have been more upbeat about the factory outlook. Manufacturing grew by the most in five months in February, based on a March 1 report from the Institute for Supply Management. The report showed companies brought inventories closer into line with sales.

Chip Orders

Santa Clara, California-based chipmaker National Semiconductor Corp. said distributors are increasing orders after clearing out stockpiles of unsold chips. Bookings from customers and distributors improved toward the end of the quarter ended Feb. 25, said Chief Executive Officer Brian Halla.

``This suggests that the inventory correction may well be behind us,'' Halla said March 8.

Before today's report, the U.S. economy was forecast to expand at a 2.4 percent annual rate this quarter and accelerate to 3 percent by year's end, according to the median estimate of 75 economists surveyed by Bloomberg News earlier this month.

Economists at Morgan Stanley today lowered their first- quarter growth forecast to 1.6 percent from 2 percent, while HSBC Securities USA dropped it to 1.5 percent from 1.8 percent.

Growth in business spending may be limited as companies in many industries continue to sell from existing stockpiles rather than expand production. Inventories at U.S. businesses rose in January as sales declined by the most in four months, a March 13 Commerce Department report showed.

An inventory glut is still ``winding down,'' Ron Slaymaker, vice president for investor relations at Dallas-based Texas Instruments Inc., told analysts this month on a conference call

To contact the report on this story: Joe Richter in Washington at Jrichter1@bloomberg.net

Last Updated: March 28, 2007 16:14 EDT