(Reuters) - New orders for U.S.-made goods fell more than expected in October, marking the biggest monthly drop in roughly three and a half years, constrained by weakening demand for durable goods and transportation equipment and bolstering the view that high interest rates are beginning to bite into spending.

Factory orders fell 3.6% after a downwardly revised 2.3% in

September, the Commerce Department's Census Bureau said on Monday, the biggest monthly drop since April 2020. Economists polled by Reuters had forecast orders would decline 2.8%. Orders advanced 0.5% on an annual basis in October.

The manufacturing sector, buoyed by a jump in spending on goods in the third quarter, is increasingly feeling the strain of higher interest rates and adds to signs the economy will more meaningfully slow in the fourth quarter. The sector accounts for 11.1% of the economy.

Orders for durable goods fell 5.4%, with orders for transportation equipment slumping 14.7%. Machinery orders decreased 0.3%. Electrical equipment, appliances and components orders fell 1.1%. Manufacturing non-durables declined 1.9%.

Shipments of manufactured goods fell 1.4%. Manufactured goods inventories edged up 0.1%, while unfilled orders rose 0.3%.

The government also reported that orders for non-defense capital goods excluding aircraft, which are seen as a measure of business spending plans on equipment, declined 0.3% instead of 0.1% as reported in last month's estimate.

Shipments of these so-called core capital goods were flat from the previous month. Business spending on equipment contracted in the third quarter.