By Glenn Somerville
WASHINGTON, Nov 4 (Reuters) - New orders received by U.S. factories tumbled for a second straight month in September, underscoring the grim economy awaiting the winner of Tuesday's presidential election.
Overall factory orders dropped 2.5 percent to a seasonally adjusted $432 billion, according to a Commerce Department report. Economists were expecting a more modest 0.8 percent decline and the sharp drop in orders follows a 4.3 percent plunge in August orders, which was originally reported as a 4 percent decline.
Excluding transportation, orders plummeted a record 3.7 percent in September after a 3.6 percent August drop.
"It's a deeply negative report. Overall, this is setting the economy up for a very bleak fourth quarter," said Kurt Karl, the chief U.S. economist at Swiss Re in New York.
The report adds to signs of a rapid downturn sweeping manufacturing in the United States, which earlier this year had been somewhat shielded from the housing crash and credit freeze thanks to overseas demand.
However, factories may be suffering as the U.S. dollar strengthens, making U.S. exports less competitive, and the economy in Europe slows sharply and cuts demand for U.S. goods.
On Monday, the Institute for Supply Management said its index of U.S. factory activity sank to its lowest reading in 26 years, confirming for many economists that the world's largest economy was shrinking.
Somewhat surprisingly, Commerce reported that orders for motor vehicles and parts rose 3.3 percent in September after an 8.9 percent drop in August. That seems unlikely to continue given that carmakers reported that sales in October dived to the lowest in a quarter century and dealers' lots are stuffed with unsold vehicles.
Wall Street was sharply higher following the report, as investors looked beyond the data and were enthused by signs of thawing credit markets.
The Dow Jones industrial average was 3 percent higher, while bond prices were flat and the dollar weakened.
Orders for primary metals that are basic to manufacturing fell 4.6 percent in September after plunging 12.5 percent in August. Computer orders were down 1.8 percent, nearly reversing a 1.9 percent August rise.
Machinery orders edged up 0.9 percent in September, though it came after a big 6.6 percent August fall and nondefense capital goods orders were ahead 0.8 percent following a 7.8 percent August drop. (Reporting by Glenn Somerville; Editing by Tom Hals)