Oct. 25 (Bloomberg) -- Orders for American-made durable goods unexpectedly fell, led by a slump in military equipment that overshadowed increases in business investment.

Demand for cars, planes and other items made to last several years fell 1.7 percent in September, the Commerce Department said today in Washington. At the same time, orders for and sales of computers and machinery, a proxy for capital spending, advanced.

``Manufacturing will have slow-but-steady growth through the end of the year,'' said Adam York, an economist in Charlotte, North Carolina, at Wachovia Corp., which had forecast orders would decline in September. The drop in total orders was ``not quite as weak as the headline suggests.''

Record export demand will keep manufacturing growing, helping prevent the housing-market recession from sinking the broader economy, economists said. The gains in business investment prompted Morgan Stanley and Macroeconomic Advisers LLC, a St. Louis-based research group, to lift their estimates of third-quarter growth.

Macroeconomic Advisers, headed by former Federal Reserve Governor Lawrence Meyer, increased its calculation of growth last month to 3.3 percent, from 3.1 percent. Morgan Stanley adjusted its estimate to 3.5 percent, from 3.1 percent.

Treasuries were little changed after the figures. The yield on the benchmark 10-year note was 4.33 percent at 9:45 a.m. in New York, from 4.35 percent late yesterday.

Jobless Claims

A separate government report today showed that first-time claims for unemployment benefits exceeded economists' forecast last week, suggesting some softening in the job market.

The Labor Department said jobless claims decreased by 8,000 to 331,000 in the week that ended Oct. 20 after reaching a six- month high the prior week. That compares with a weekly average of 318,200 so far this year and a median forecast of 320,000.

Economists expected a 1.5 percent gain in total durable- goods orders, according to the median of 76 forecasts in a Bloomberg survey, after a previously reported 4.9 percent decline for August. Estimates ranged from an increase of 4 percent to a drop of 0.7 percent.

Excluding demand for transportation equipment such as Boeing Co. jets, which can be volatile, orders rose 0.3 percent after a 1.8 percent decline. Those orders were forecast to rise 0.7 percent.

Business Investment

The durable goods report showed bookings for non-defense capital goods excluding aircraft, a proxy for future business investment, rose 0.4 percent after a 0.1 percent decrease the prior month that was smaller than previously estimated. Shipments of those items, used in calculating gross domestic product, rose 1 percent after jumping 1.8 percent in August, which was also more than reported last month.

Orders for commercial aircraft rose 18 percent after dropping 41 percent.

Boeing Co., the world's second-biggest commercial-airplane maker, said it received orders for 132 planes in September, up from 75 the prior month. Chief Executive Officer James McNerney is ramping up assembly lines 12 percent this year as he works through a record backlog of more than $200 billion in orders, mainly from Asian and Middle Eastern airlines.

Business Investment

Rising demand for computers and machinery suggest other types of business investment is growing.

Computer orders increased 1.1 percent in September and machinery bookings jumped 4.3 percent.

Automobile bookings fell 2.9 percent after falling 8.2 percent the prior month. High gasoline prices continue to damp demand at automakers including General Motors Corp., Ford Motor Co. and Chrysler LLC. The companies said they will scale back production in October.

There is mounting concern the squeeze in credit markets and the housing recession may take a bigger toll on the rest of the economy, prompting the Federal Reserve to cut interest rates again before the end of the year, economists said. The Fed next meets on Oct. 30-31 and investors anticipate policy makers will lower the main rate a quarter point to 4.5 percent.

Recent reports pointed to some softness in manufacturing.

``Factory activity continued to expand, but reports suggested that growth has been dampened by declining output of products used in home construction,'' the Fed said Oct. 17 in its regional business survey, known as the Beige Book.

`Uneven' Outlook

``The outlook for factory activity is uneven,'' with some districts citing possible spillovers from stricter credit rules and automakers projecting weaker sales, the central bank said.

Caterpillar Inc., the world's largest maker of bulldozers and excavators, last week cut its full-year profit forecast as the U.S. housing slump reduced sales of construction equipment in North America. Still, overseas demand is helping sustain sales for the Peoria, Illinois-based company.

``Outside North America, our business is strong,'' Chief Financial Officer Dave Burritt said in an interview Oct. 19.

Some caution also is creeping into plans at firms outside of the manufacturing industry. Wal-Mart Stores Inc., the world's largest retailer, yesterday trimmed its capital spending forecast for the second time this year as its sales grew at the lowest level in at least 27 years.

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