Another red flag: Durable-goods orders fall 1.7%

— -- Yet another economic indicator has flashed a warning that the economy could be in recession.

Orders for durable goods — big-ticket items expected to last at least three years, such as dishwashers, autos and airplanes — fell an unexpectedly sharp 1.7% in February, according to the Commerce Department.

"This confirms we're in a recession," says Maury Harris, chief U.S. economist for global financial giant UBS. "The slowdown is spreading beyond housing to manufacturing."

Although the decline in orders was smaller than the 4.7% slump in January, analysts were hoping for a 0.8% to 1% gain in February.

The durable-goods report was even worse when orders for commercial aircraft were factored out. Excluding the volatile aircraft numbers — a few 747 orders can skew the entire report — durable-goods orders fell 2.6%, the fourth decline in the past five months.

Economists watch durable-goods orders closely because they are a good barometer of the economy. When companies think the economy is slowing, they stop spending on such items to save money.

The report's biggest shock: Orders for manufacturing gear plunged 13.3%, the biggest drop on record.

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That wasn't the only negative sign for an economy that increasingly appears to have tipped into recession. Inventories increased to $324 billion, the highest level since 1992. When inventories pile up, companies have to slow manufacturing — and lay off workers — until they sell the goods in their warehouses.

The ratio of inventory to sales hit 1.54 in February. "We have to go back to the last recession to see when it was that high," Harris says.

The report wasn't uniformly gloomy. Orders for electrical equipment rose 1.6%, and primary metals orders gained 1%.

The biggest gain: Orders for computers and electronics rose 2.3% in February. But even that didn't impress many economists. "It's some improvement, but it hardly compares with the 10.8% gain in 2006," says John Lonski, economist for Moody's Investors Service.