WASHINGTON U.S. business investment spending fell for a fourth straight month in December, a sign that slowing global growth may be weighing on the economy, but consumers remained upbeat and new home sales in December hit their highest level since June 2008.
"The drop in (capital spending) will weigh on growth, though stronger consumer spending should keep GDP from slowing too much," said Chris Low, chief economist at FTN Financial in New York.
The Commerce Department said non-defense capital goods orders excluding aircraft, a closely watched proxy for business spending plans, dropped 0.6 percent last month after a similar decline in November. Orders for these so-called core capital goods started falling in September, the longest downward stretch since 2012.
Economists, who had expected a 0.5 percent gain, said the surprise drop last month likely reflected weak overseas demand for a wide range of U.S. capital goods and declining demand at home for energy-related equipment.
A strengthening U.S. dollar may also have been a factor, analysts said. The dollar gained 12.8 percent last year and is up 4.2 pct so far in 2015 against a basket of currencies, making U.S. exports more expensive.
The dour business investment report came as construction and mining equipment maker Caterpillar Inc (CAT.N) reported a nearly 25 percent decline in fourth-quarter profit and warned that falling oil prices would hurt its business in 2015.
A number of U.S. oil producers already have curtailed drilling activity and announced job cuts after crude oil prices fell about 60 percent since June.
U.S dollar strength is also undermining corporate profits. Procter & Gamble Co (PG.N), the world's largest household products maker, said full-year sales were likely to fall 3.0 to 4.0 percent, due to the rising dollar. Microsoft Corp (MSFT.O) on Monday said the dollar was a factor behind a decline in its quarterly earnings as well.
U.S. stock prices ended lower with the S&P 500 .SPX down 1.34 percent. The 30-year U.S. Treasury yield fell to a record low of 2.33 percent, and the U.S. dollar fell against a basket of major currencies .DXY.
FEDERAL RESERVE DECISION DUE WEDNESDAY
Weak equipment spending is likely to catch the attention of Federal Reserve officials, who have been eyeing mid-year for a possible interest rate rise. Fed officials are due to conclude a two-day policy meeting on Wednesday.
"This is ... evidence that the dollar's strength is starting to show up in terms of weaker orders, a new soft spot for manufacturing that perhaps will give some of the policymakers pause if not worry," said Chris Rupkey, chief financial economist at MUFG Union Bank in New York.
Shipments of core capital goods, which are used to calculate equipment spending in U.S. gross domestic product, fell 0.2 percent last month after slipping 0.6 percent in November and 0.9 percent in October.
Economists said that suggested a downside risk to their fourth-quarter economic growth estimates, most of which currently hover around a 3.0 percent annual pace. The government will publish its first snapshot of fourth-quarter GDP on Friday.
CONSUMER SPIRITS HIGH
On the brighter side, U.S. consumer confidence strengthened to its highest level in more than seven years in January on growing optimism about the jobs market and the overall economy, according to industry group, the Conference Board, on Tuesday.
The Board's index of consumer attitudes jumped to 102.9 from an upwardly revised 93.1 in December. Economists expected a January reading of 95.1, according to a Reuters poll.
U.S. services sector growth also rebounded modestly in January but companies reported the weakest level of new business growth in more than five years, according to private data vendor Markit Tuesday.
Markit's preliminary Purchasing Managers Index for the service sector rose to 54.0 in January from 53.3 in December, which had matched a 10-month low. The January figure marked the first rise in the index since it peaked in June with a reading of 61.
Another report from the Commerce Department showed new home sales jumped in December to their highest level since 2008. The increase came as mortgage interest rates trended lower, fueling a jump in home loan applications this month.
"January's impressive surge in mortgage applications suggests we may see continued momentum in new home sales," said Derek Lindsey, an analyst at BNP Paribas in New York. A fourth report on Tuesday though showed a slowdown in house price gains. The S&P/Case Shiller composite index of 20 metropolitan areas rose 4.3 percent in November from the prior year, the slowest since October 2012.
(Reporting by Lucia Mutikani; Additional reporting by Richard Leong in New York; Editing by Paul Simao)