WASHINGTON – Orders for U.S. factory goods fell by 4.7 percent in October, the latest evidence of contraction in the manufacturing sector, the Commerce Department said Tuesday.

Excluding transportation, however, orders for U.S.-made factory goods fell by 0.8 percent.

Taking out orders for defense goods, orders fell by 3.6 percent in October.

It was the biggest overall drop in factory orders since July 2000. Falling orders for transportation equipment and defense and non-defense capital goods dragged down the overall number, the report shows.

Orders for defense capital goods fell by 41.5 percent, while orders for nondefense capital goods dropped by 15.5 percent. Orders for transportation equipment fell by 21.6 percent.

Wall Street economists surveyed by MarketWatch were expecting factory orders to decline by 4 percent in October.

Shipments increased by 0.1 percent in October after falling by 4.2 percent in September.

Durable-goods orders declined by 8.2 percent in October, just slightly lower than the drop of 8.3 percent estimated by the government a week ago. It was the biggest drop since July 2000.

Excluding transportation, orders for durable goods dropped by 1.5 percent in October. Excluding defense, orders for durable goods dropped by 6.3 percent.

Factory orders for September were revised lower, to a gain of 1.7 percent from a previously estimated gain of 2.1 percent.

With the factory sector shrinking, some economists believe the Federal Reserve may have to step in with an interest-rate cut to stimulate demand.

Last week, the Institute for Supply Management reported that the sector shrank in November for the first time in more than three years.

At least one president of a regional Federal Reserve bank said he believes that the economy remains solid. Chicago Fed President Michael Moskow said in an interview on CNBC.com Monday that he still expects growth somewhat below the 3 percent trend rate in the beginning of next year, with improvement as the year goes on.

Earlier Tuesday, data released by the Labor Department showed that inflationary pressures stemming from higher wages are not building as fast as previously thought.

Also, a separate report released Tuesday eased concerns about a broad economic slowdown.

The services side of the U.S. economy showed strength in November, the Institute for Supply Management reported Tuesday.

The ISM nonmanufacturing index rose to 58.9 percent in November from 57.1 percent in October. This is the highest level since May.

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AP-NY-12-05-06 1758EST