Weak durable goods orders last month fueled concern on Thursday over the resilience of the U.S. economy to the country's steep housing slump.
Jobless claims also jumped last week, in a possible sign of mounting pressure on the labor market. However, a measure of consumer confidence improved somewhat in December.
New orders for long-lasting U.S.-made manufactured goods rose by a much less-than-forecast 0.1 percent during November and a key gauge of corporate appetite for investment also unexpectedly shrank, Commerce Department data showed.
Non-defense capital goods orders excluding aircraft, a closely watched proxy for business spending, declined 0.4 percent after falling 2.9 percent in October, Commerce said, pointing to cooler fourth-quarter economic activity.
The dollar softened and U.S. government bonds rallied on the news as investors raised their expectations of weaker U.S. growth.
News that Pakistani opposition leader Benazir Bhutto had been murdered hit at roughly the same time as the data, adding additional concerns about global stability.
"Two monthly declines in a row for 'core' capital goods orders suggest increased caution among businesses as financial conditions tighten and the economy slows," said Nigel Gault, U.S. economist at Global Insight.
Investors See Further Fed Cuts
Investors expect the U.S. Federal Reserve to respond to the slowdown by lowering borrower costs again at its next policy meeting on Jan. 29-30. Interest rate futures markets implied an 84 percent likelihood of a quarter point cut versus a 72 percent likelihood on Wednesday.
Analysts polled by Reuters had expected a 0.5 percent November increase for non-defense capital goods orders excluding aircraft. They had projected a 2.0 percent jump in overall orders in November from a revised 0.4 percent fall the month before.
"The report does reinforce the notion that there's less demand for durable goods ... (it) suggests a weak print for fourth-quarter" gross domestic product said Joseph Brusuelas, chief US economist at IDEAglobal in New York.
It was the first monthly increase in overall orders since July, the Commerce Department said, but orders excluding transportation shrank 0.7 percent in November.
"The sluggish demand for durable goods during November indicates that business confidence in the economy continues to be adversely impacted by the deep housing downturn," said Clifford Waldman, Economist for the Manufacturers Alliance/MAPI, who also cited the credit crunch as a headwind.
Total inventories of durable goods rose 0.8 percent last month, the strongest gain since October 2006, the department said. Inventory build up can signal the anticipation of stronger sales ahead, but it may also have been unintended after sales came in weaker than hoped during the period.
Jobless Claims Up
In a separate release, new applications for U.S. jobless benefits unexpectedly rose by 1,000 last week, while the number of longer-term unemployed hit its highest in over two years.
Initial claims for state unemployment insurance edged up to 349,000 last week from an upwardly revised 348,000 in the prior week, the Labor Department said.
Wall Street economists were expecting claims to fall to 342,000 from the originally reported 346,000 claims for the week ended Dec. 15.
The number of people remaining on the unemployment rolls after drawing an initial week of benefits in mid-December rose to its highest since mid-November 2005.
In addition, the Conference Board said its U.S. consumer confidence index rose to 88.6 in December from an upwardly revised 87.8 in November. November's number was originally 87.3.
Economists polled by Reuters had forecast a median reading of 86.5 in the December index.