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US factory orders drop 1.5 per cent, biggest setback since July, as aircraft demand falls

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WASHINGTON - U.S. manufacturers saw orders for their products decline in December by the largest amount in five months although the setback for a key category that tracks business investment was not as large as first reported.

Orders to U.S. factories fell 1.5 per cent in December, the biggest drop since July, with much of the weakness coming from a plunge in aircraft orders, the Commerce Department reported Tuesday. Orders had risen 1.5 per cent in November after a 0.5 per cent October decrease.

Orders in a closely watched category that serves as a proxy for business investment declined 0.6 per cent, a smaller fall than the 1.3 per cent drop estimated in a preliminary report last week. The decrease followed a sizable 3 per cent jump in November, an increase spurred by an expiring tax break.

Demand for durable goods, items expected to last at least three years, fell 4.2 per cent, slightly less than the 4.3 per cent preliminary estimate. Orders for nondurable goods such as chemicals, paper and food rose 1.1 per cent in December following a 0.4 per cent November gain.

Analysts say part of the weakness in December reflected a temporary slowdown following a rush to purchase capital goods in November to take advantage of expiring federal tax breaks.

Orders for all of 2013 totalled $5.82 trillion, up 2.5 per cent from 2012, as manufacturing continued to recover from the Great Recession.

For December, demand for commercial aircraft, a volatile category, fell 17.5 per cent after having risen 21.1 per cent in November. While the drop in airplane orders led the declines, there was weakness in a number of categories. Orders for iron and steel fell 10 per cent while demand for construction machinery was down 2.9 per cent and demand for computers and other electronic products fell 6.3 per cent.

The Institute for Supply Management, a trade group of purchasing managers, said Monday that its index of manufacturing activity fell to 51.3 in January from 56.5 in December. It was the lowest reading since May although any reading above 50 signals growth in manufacturing.

The January performance of the ISM index suggests that U.S. manufacturing slowed at the beginning of this year.

Auto sales have decelerated and businesses are spending cautiously on machinery and other large factory goods.

The slowdown could mean that economic growth in the first three months of this year will get less support from manufacturing.

But some economists said that the weak ISM reading may reflect unusually bad weather in January.

The Federal Reserve reported that factory output in December rose for a fifth straight month. Manufacturers produced more cars, trucks and appliances in December.

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