WASHINGTON — Orders for long-lasting manufactured goods dropped sharply in December, dragged lower by a big decline in demand in the volatile commercial aircraft category.
Orders for durable goods fell 3.4 percent in December, the Commerce Department reported Tuesday. It was the biggest drop in four months and followed a 2.1 percent decline in November, which represented a major downward revision from the previous estimate of a 0.9 percent drop.
The data suggests that U.S. businesses may be growing wary of potential risks: global economic weakness, a rising dollar that hurts American exports and the big drop in energy prices, which has cut demand for oil drilling equipment.
Although the December result was led by a 55.5 percent plunge in the volatile category of commercial aircraft, weakness in a number of areas contributed to the overall retreat.
Demand for machinery, computers and primary metals all fell. A key category that serves as a proxy for business investment plans edged down 0.6 percent in December after a similar decline in November and a 1.8 percent fall in October.
The decline surprised economists, who had been forecasting a small increase for December. The worse-than-expected report could mean that overall economic growth in the October-December quarter will be weaker than anticipated. Economists at Barclays trimmed their estimate for overall economic growth in the fourth quarter to a 3.2 percent rate, down from 3.3 percent, based on the weakness in the durable goods report.
Economists, however, said they expected the weakness in business investment for oil exploration to be more than offset by stronger consumer spending, reflecting the break motorists are getting in plunging gas prices.
"The world economic situation is sharply divided between an improving domestic economy and pronounced weakness in key regions outside of the U.S, most notably the Eurozone and China," said Cliff Waldman, director of economic studies for the MAPI Foundation, the research arm of the Manufacturers Alliance for Productivity and Innovation.
The consecutive declines in durable goods left orders for December at $230.5 billion.
The recent weakness in manufacturing contrasts with earlier months when U.S. factories were enjoying large gains in orders and production. Analysts believe that the recent retreat in orders will be reversed in the new year, although they are watching closely to monitor the impact of the stronger dollar on exports.
The Institute for Supply Management reported that factory activity edged down to the slowest pace in six months, based on declines in orders and production.
The ISM manufacturing index fell to 55.5 in December from 58.7 in November. Any reading above 50 signals expansion. In October, the index had hit a three-year high.
Falling prices for oil and other commodities should help many manufacturers by lowering their costs. But the steep plunge in oil could also trigger a cutback in investment in oil and gas drilling equipment.
Factory production in November surpassed its pre-recession peak, according to data compiled by the Federal Reserve. This gain was spurred by strong output at auto plants. Those gains reflect healthy car sales last year, a trend that is expected to continue in 2015.