WASHINGTON - U.S. businesses cut back sharply on their orders for long-lasting manufactured goods in December with a key category that signals business investment plans falling by the biggest amount in five months.
Orders for durable goods fell 4.3
percent in December compared with November, when orders had risen 2.6 percent,
the Commerce Department reported Tuesday. The weakness was led by a big 17.5
percent drop in the volatile category of commercial aircraft.
There was widespread weakness in a
number of categories including a 1.3 percent decline in demand for non-defense
capital goods excluding aircraft. This category is viewed as a proxy for
business investment plans.
Some of the December weakness probably
reflected a temporary dip following November's big jump which had been driven
by businesses rushing to take advantage of expiring tax breaks.
The December decline came as a
surprise to economists. The consensus view among economists was that orders
would post a moderate rise reflecting what they believe is an improving outlook
for U.S. manufacturers.
In addition to the big drop in orders
for commercial aircraft, orders for motor vehicles and parts fell 5.8 percent.
That was likely a temporary dip given the strong sales that automakers are
Orders for primary metals such as
steel fell 2.1 percent while demand for computers and other electronic products
dropped 7.8 percent. Orders for machinery rose 0.8 percent.
A key gauge of manufacturing activity
remained near a 2 1/2 year high in December. The Institute for Supply Management
said its manufacturing index registered 57 in December, only slightly down from
a 57.3 reading in November. The December level was still the second-highest
reading since April 2011. Any reading above 50 signals growth in manufacturing.
Consumers are buying more autos and
houses, boosting demand for such items as steel, furniture and other
The ISM's manufacturing index had
increased for six straight months through November. In a good sign for the
future, a measure of new orders in the ISM rose in December to the highest
level since June 2011.
Economists are hoping that 2014 will
mark a turning point for an economy that has performed at sub-par rates for
much of the time since the recession ended in June 2009. Many analysts are
forecasting the economy will grow by around 3 percent in 2014, up by a full
percentage point from 2013.
Much of the hope for a better 2014
reflects a belief that the federal government will be less of a drag this year.
In 2013, higher taxes and across-the-board spending cuts trimmed about 1.5
percentage points from growth.
U.S. manufacturers are also being
helped by an improving outlook in many overseas markets. Europe's economy is
picking up slightly after a long recession.
The rising economic strength is giving
the Federal Reserve the leeway to scale back slightly on its support programs.
The Fed in December announced it was trimming a monthly bond buying program
from $85 billion to $75 billion and indicated it would make further cuts at
upcoming meetings if the economy and labor market continue to improve. The bond
purchases were aimed at pushing long-term interest rates lower as a way to
stimulate greater economic activity.
The Fed is holding its first meeting of 2014 on Tuesday and Wednesday. It will be the last time Federal Reserve Chairman Ben Bernanke will preside. He is stepping down at the close of business on Friday and will be succeeded by Fed Vice Chair Janet Yellen.