The New York Fed's "Empire State" general business conditions index fell to 10.31 in December from 27.37 in November. It was the lowest reading since May and below the 20.00 forecast by economists polled by Reuters.
The index on new orders dropped to 14.26 in December from 24.49 in November, while the reading on shipments fell to 21.08 in December from 32.19 in November.
The inventories component fell to -10.00 in December from -1.19 in November, while the prices paid component fell to 35.00 in December from 42.86 in November.
The survey of manufacturing plants in the state is one of the earliest monthly guideposts to U.S. factory conditions.
Meanwhile, the Commerce Department's report showed stronger U.S. exports and a rise in income earned on U.S.-assets held abroad helped shrink the deficit to its lowest since third quarter 2005, when it was $173.4 billion.
The third-quarter current account deficit equaled 5.1 percent of gross domestic product, down from 5.5 percent in the prior quarter and the lowest since 4.9 percent in the first quarter of 2004, the Commerce Department said.
Analysts were expecting the current account gap to narrow to $183.8 billion in the third quarter, from the initial estimate of $190.7 billion for the second quarter.
The current account is the broadest measure of U.S. trade with the rest of the world and includes goods, services and income flows.
"This is still a big deficit even though we had some modest reduction. Some of that progress is due to the fact that imports have been restrained and the economy is weakening," said Robert Brusca, chief economist at Fact and Opinion Economics in New York.
The goods deficits narrowed to $199.7 billion in the third quarter, from $204.2 billion in the second, as an increase in exports of capital goods, food, and other products outpaced gains in imports led by autos and petroleum.
The U.S. surplus on income increased to $20.5 billion in the third quarter from $12.7 billion in the second.
U.S.-owned assets abroad increased to $155.7 billion following an increase of $465.5 billion in the second quarter. Foreign-owned assets in the United States increased $249.1 billion in the third quarter, following an increase of $619.3 billion in the second.
The U.S. dollar depreciated 3 percent in the third quarter against a group of 7 major currencies, the Commerce Department said.