WASHINGTON - August 3, 2010 - Factory orders fell in June for the second straight month due to lower demand for steel, construction machinery and aircraft.

The Commerce Department said Tuesday that factory orders dropped by 1.2% to a seasonally adjusted $406.4 billion. Analysts expected a much smaller drop.

May's decline was revised to a steeper decrease of 1.8%. It was initially reported as a 1.4% drop.

The two months of declines follow nine straight month of increases, as manufacturers ramped up production last fall and helped the U.S. economy grow after four quarters of contraction.

But the sector has since shown signs of stumbling, raising concerns the economy will slow in the second half of this year.

One bright spot in the Commerce Department's report is that business spending on capital goods such as machinery grew in June by 0.2%. But that was down from a previous estimate of 0.6%.

Aircraft orders, a volatile category, fell by 25.6% in June, the department said. Excluding the transportation sector, orders fell by 1.1%.

Orders for new construction machinery plummeted by 23.2%, after rising sharply in May. Iron and steel mill orders dropped 3.4%.

Orders for durable goods - big-ticket items meant to last at least three years - also fell by 1.2% in June, a steeper drop than the 1% decline reported last month.

Demand for nondurable goods such as food, clothing and chemical products fell by 1.3%, the department said.