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For the second month in a row, factory orders declined, as capital spending by businesses may be cutting back.

The Commerce Department reported that manufactured goods dropped by 1.3 percent in February, after the 2.3 percent drop in January.

Orders for durable goods, defined as more expensive items built to last for several years, fell by 1.1 percent in February. The original estimate of 1.7 percent was revised.

``Business investment spending is likely to be weaker than we had thought earlier,'' said Dana Saporta, an economist at Dresdner Kleinwort, which correctly forecast the decline, in New York. ``This is likely to have an adverse effect on the growth of employment and income.''

The manufacturing index for March increased from 48.3 in February to 48.6 in March, according to the Institute for Supply Management. Even though that was an obvious improvement, any number under 50 shows the economy is contracting and not expanding. January had ended at 50.7.