July’s decline was not as large as the 2.6% fall that was seen in June, the department said Friday. Orders for durable goods, items expected to last three or more years, have fallen in three of the last four months while manufacturers continue their struggle to get rid of unsold products.

Analysts say consumer spending, which accounts for two-thirds of the economy, may accelerate in coming months as the bulk of the government's mailings of advance tax refund checks totaling $38 billion reaches consumers. However, the Commerce Department said the tax refund checks probably had little effect on the July retail sales figures.

Industry is also hoping that last week’s short-term interest rate cut, the seventh such cut of the year, will help sales. The federal funds rate, the central bank's target for an overnight bank lending rate, now stands at 3.50 %, its lowest level since March 1994.

New orders for transportation equipment also managed a 1.3% increase in July, reflecting a 3.8% increase in demand for autos and parts. Despite the economic slowdown and increasing layoffs, consumer spending has remained strong in such areas as autos and housing. This has been the key factor keeping the country out of a recession, and is a positive sign for auto carriers.

Excluding the strength in transportation, new orders would have fallen by an even bigger 1.4% in July, the fourth decrease in the last five months.

The report said that July's weaknesses was led by a 4.4% drop in new orders for computers and related high-tech products. The lack of demand for semiconductors, which fell 12.4%, brought that number down considerably. The Federal Reserve cut short-term interest rates by a quarter of a percentage point Tuesday, its seventh cut this year as part of a continuing effort to keep the U.S. economy from slipping into a recession, and left the door open for further cuts. The Fed also cut the seldom-used discount rate to 3.0 percent from 3.25 percent.