By Lucia Mutikani
WASHINGTON (Reuters) - New orders for long-lasting manufactured goods in December recorded their biggest drop in 16 months, the latest indication that U.S. economic growth braked sharply at the end of 2015.
Despite the slowdown in growth, which was acknowledged by the Federal Reserve on Wednesday, the labor market remains on solid ground. Other data on Thursday showed the number of Americans filing for unemployment benefits retreated from a six-month high last week.
The economy has been blindsided by a strong dollar, spending cuts by energy firms bruised by the slump in oil prices and anemic demand overseas. Business efforts to trim an inventory overhang have also weighed on growth and the outlook has been dimmed by the recent stock market selloff.
The Commerce Department said durable goods orders plunged 5.1 percent last month, the biggest drop since August 2014, after slipping 0.5 percent in November. The decline was generally broad-based, with orders for transportation equipment plunging 12.4 percent and bookings for non-defense aircraft plummeting 29.4 percent.
The drop in aircraft orders is surprising as Boeing (N:BA) received orders for 223 aircraft in December, up from 89 planes the prior month, according to information posted on its website.
Economists polled by Reuters had forecast durable goods orders falling 0.6 percent last month.
Non-defense capital goods orders excluding aircraft, a closely watched proxy for business spending plans, decreased 4.3 percent in December. These so-called core capital goods orders fell 1.1 percent in November.
The decline in orders for both durable and capital goods adds to weak data on retail sales, industrial production, exports and business inventories, suggesting the economy slowed sharply in the fourth quarter.
According to a Reuters survey of economists, the government is expected to report on Friday that fourth-quarter gross domestic product increased at a 0.8 percent annual rate after notching a 2 percent pace in the third quarter. There is, however, a risk that output contracted in the fourth quarter.
U.S. financial markets were little moved by the data on Thursday as traders followed the gyrations in crude oil prices.
WEAK BUSINESS SPENDING
The Fed said on Wednesday "economic growth slowed late last year" and noted that business fixed investment has been increasing at a "moderate" pace in recent months.
The U.S. central bank left its benchmark overnight interest rate unchanged and said it was "closely monitoring global economic and financial developments" to assess their impact on the labor market and inflation.
The Fed raised rates in December for the first time in nearly a decade.
While cheap oil has been a boon to consumers, it has eroded the profits of energy companies, forcing oilfield services firms like Schlumberger (N:SLB) and Halliburton (N:HAL) to cut capital spending budgets.
Manufacturing, which accounts for 12 percent of the economy, has also taken a knock from efforts by businesses to slim down an inventory bloat, which has undercut growth in new orders. The dollar has weighed on exports.
Pointing to weak business spending, shipments of core capital goods – used to calculate equipment spending in the GDP report – dipped 0.2 percent last month after falling 1.1 percent in November.
In a second report, the Labor Department said initial claims for state unemployment benefits fell 16,000 to a seasonally adjusted 278,000 during the week ended Jan. 23.
The drop, which exceeded economists' expectations for a fall of 282,000, almost reversed the prior two weeks' increases.
It was the 47th straight week that claims remained below the 300,000 mark, which is associated with strong labor market conditions. That is the longest stretch since the early 1970s.