Durable goods orders plummeted in December

WASHINGTON - Orders for long-lasting manufactured goods dropped sharply in December, dragged lower by a big decline in demand for commercial aircraft.

Orders for durable goods fell 3.4 percent in December following a 2.1 percent decline in November, the Commerce Department reported Tuesday. The decline was led by a 55.5 percent plunge in the volatile category of commercial aircraft.

There was also weakness in a number of areas, with demand for machinery, computer and primary metals all down. 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 overall decline was unexpected. Economists had been forecasting a small increase for December and some said the worse-than-expected report could mean that overall economic growth in the October-December quarter will be weaker than expected.

Paul Ashworth, chief U.S. economist for Capital Economics, said there was now a risk that his 3 percent forecast for overall growth would not be met.

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.