Orders for U.S. factory goods posted their biggest drop in a year during April, but estimated demand for the prior month was elevated.

Demand for manufactured goods decreased by 1.7% last month to $356.85 billion, the Commerce Department said today. It was the biggest drop since April 2003’s 2.6% decline. But March factory orders were revised to show a 5% increase; demand for the month was previously estimated as rising 4.3%.

Economists had forecast a 1% decline.

Meanwhile, growth in the giant U.S. services sector slowed in May but remained strong enough to improve the industry’s employment prospects.

The Institute for Supply Management’s non-manufacturing index, released today, eased to 65.2 in May from a record of 68.4 set in April and just short of Wall Street estimates for a dip to 66.0.

A number above 50 indicates growth in services.

U.S. workers were more productive than previously thought during the first three months of 2004.

Non-farm business productivity grew at a seasonally adjusted annual rate of 3.8% from January through March, up from the initial estimate of a 3.5% increase, the Labor Department said Thursday. In year-on-year terms, the increase was 5.5%, the largest in 31 years.

Productivity growth was stronger than first thought partly because the U.S. gross domestic product expanded at a faster pace than originally estimated. GDP grew 4.4% in the first quarter, up from the initial estimate of 4.2%.

In a separate report, the Labor Department said initial jobless claims fell by 6,000 to a seasonally adjusted level of 339,000 in the week ended May 29. But the four-week average climbed by 5,250 to 341,000 and the number of workers drawing benefits for more than a week grew.

The Labor Department revised its initial estimate of claims for the week of May 22, raising it by 1,000 to 345,000.