Lower Oil Prices Squeezing U.S. Manufacturing Sector

Non-defense capital goods orders excluding aircraft, a closely watched proxy for business spending plans, fell 4.3 percent in December, the largest drop in 10 months. 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.

Apart from the buoyant dollar and spending cuts by energy firms bruised by the slump in oil prices, the economy has been blindsided by anemic demand overseas and business efforts to trim an inventory overhang. The growth outlook has been dimmed by the recent stock market selloff.

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.

The U.S. dollar extended losses against the euro after the data and was down against a basket of currencies. Stocks were largely flat as were prices for U.S. government debt.

DOUR REPORT

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 U.S. labor market and inflation.


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