Orders for US durable goods fell 3.4 per cent in December amid global economic worries

WASHINGTON – Orders for long-lasting manufactured goods dropped sharply in December, as U.S. businesses trimmed spending amid escalating worries about the global economy.

Orders for durable goods fell 3.4 per cent in December, the Commerce Department reported Tuesday. It was the biggest retreat in four months and followed a 2.1 per cent decline in November, which represented a major downward revision from the previous estimate of a 0.9 per cent drop.

The data suggest that U.S. companies may be growing wary of a number of potential risks: economic weakness in Europe and Asia, a rising dollar that hurts American exports and tumbling energy prices, which has cut demand for oil drilling equipment.

The December result was led by a 55.5 per cent plunge in the volatile category of commercial aircraft. But the weakness was broad-based, raising questions about the U.S. economy’s ability to keep growing at a robust pace.

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 per cent in December after a similar decline in November and a 1.8 per cent 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 turn out weaker than anticipated. Economists at Barclays trimmed their estimate for overall economic growth in the fourth quarter to a 3.2 per cent rate, down from 3.3 per cent, based on the lacklustre 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 setbacks 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 rebound this 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.