WASHINGTON (AP) – U.S. manufacturers saw demand for big-ticket products drop by a sizable 0.9 percent in August, raising new questions about whether this sector of the economy is losing a grip on its own fragile recovery.

The decrease in new orders for “durable goods” – costly manufactured items expected to last at least three years – was the first and biggest decline in four months. It marked a reversal from the 1.5 percent increase in orders registered in July, the Commerce Department reported Thursday.

The showing in August was much weaker than the 0.5 percent increase that economists were forecasting and represented a setback for the nation’s manufacturers, who have had the hardest time trying to recover from the 2001 recession.

The weakness in demand last month was fairly broadbased, with orders for cars, computers, communications equipment and machinery all going down.

On Wall Street, stocks were pulled lower by the manufacturing news. The Dow Jones industrial average was down 24 points and the Nasdaq index was off 3 points in morning trading.

Although economists were disappointed by the report, they were cautiously hopeful it will turn out to be only a temporary rough patch and that there will be improvements in orders in the coming months. “While the economy seems to be picking up steam, the nation’s factories remain the little engines that hopefully can,” said Joel Naroff, president of Naroff Economic Advisors.

In other economic news, despite higher mortgage rates, sales of both new homes and previously owned ones were brisk in August, fresh evidence that the housing market is providing support for the national economy’s recovery.

New-home sales rose by 3.4 percent in August from the previous month to a seasonally adjusted annual rate of 1.15 million units. It was the second-highest level on record, which was set in June, the department said in a second report.

And, sales of existing homes jumped by 5.5 percent in August to a rate of 6.47 million, a record monthly high, the National Association of Realtors reported.

The performance for both sales of new homes and existing homes in August was stronger than analysts were expecting. They were calling for a decline in sales.

Meanwhile, new applications for unemployment benefits dropped last week by a seasonally adjusted 19,000 to 381,000, a seven month low, the Labor Department said. But at least half of the drop was related to workers not being able to file jobless claims because of Hurricane Isabel, which pummeled the East Coast, a department analyst said.

Thursday’s manufacturing report was consistent with a report from the Federal Reserve earlier this month showing that factory production dipped by 0.1 percent in August, after three straight months of gains. However, some other reports on manufacturing activity in August were more encouraging.

Still, even with recent data pointing to a mixed picture for manufacturing, the economy has displayed signs of gaining traction in the current quarter.

Against that backdrop, the Federal Reserve last week decided to hold a key short-term interest rate at a 45-year low of 1 percent and hinted it could stay there for some time.

In the durable-goods report, orders for all transportation products fell by 2.2 percent in August, after a 0.3 percent dip. Orders for cars decreased 7.5 percent last month, erasing a 6 percent gain in July.

Excluding transportation equipment, which can swing widely from month to month, orders placed for all other big-ticket products dropped by 0.3 percent in August, the first decrease in the last four months.

Orders for computers in August fell 2.3 percent, reversing part of a 3.2 percent increase registered in July. Communications equipment saw orders decline by 4.8 percent last month, compared with a 11.5 percent jump in July.

For machinery, orders went down by 0.7 percent in August, following a 3.4 percent advance the previous month. Orders for fabricated metal products dropped 3.6 percent in August, after a 4.2 percent advance in July.

Shipments – a good barometer of current demand – fell 2.9 percent in August, after rising by 2.8 percent in July.

There were a few brights spots in the report: Orders for primary metals, including steel, went up by 2.9 percent in August, on top of a 1.8 percent gain the month before. And, orders for electrical equipment and appliances rose 1.3 percent last month, after dropping by 0.7 percent in July.

AP-ES-09-25-03 1119EDT