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New orders for key U.S.-made capital goods dropped by the most in eight months in December and shipments were weak, suggesting business investment contracted further in the fourth quarter

and was a drag on economic growth.

The Commerce Department said on Tuesday orders for non-defense capital goods excluding aircraft, a closely watched proxy for business spending plans, fell 0.9% last month as demand for

machinery, primary metals and electrical equipment, appliances and components declined.

That was the largest decrease since April. Data for November was revised lower to show these so-called core capital goods orders edging up 0.1% instead of gaining 0.2% as previously

reported. Economists polled by Reuters had forecast core capital goods would be unchanged in December.

Core capital goods orders rose 0.8% on a year-on-year basis in December.

Shipments of core capital goods decreased 0.4% last month. Core capital goods shipments are used to calculate equipment spending in the government's gross domestic product measurement. They

declined by an unrevised 0.3% in November.

Business investment has contracted for two straight quarters and likely remained in the red in the fourth quarter, subtracting from GDP growth. The Atlanta Fed is forecasting GDP to rise at

a 1.8% annualized rate in the fourth quarter. The economy grew at a 2.1% rate in the July-September period.

The government will publish its snapshot of fourth-quarter GDP on Thursday.

Business investment had been weighed down by steep declines in both spending on equipment and nonresidential structures such as gas and oil well drilling. That has landed manufacturing in

recession. Capital expenditure has been undercut by the White House's 18-month trade war with China, which has hurt business confidence.

Though tensions have eased with the signing this month of a phase one trade deal between Washington and Beijing, manufacturing, which accounts for 11% of the economy, is not yet out of the

woods. Boeing this month suspended production of its troubled 737 Max jetliner. The aircraft has been grounded since last March following two fatal crashes.

Though airlines have continued to submit orders, there have been no deliveries, leading to a rise in inventories at factories. Boeing's biggest assembly-line halt in more than 20 years is

already causing ripple effects down the supply chain. Boeing's biggest supplier, Spirit AeroSystems, said early this month it planned to lay off more than 20% of the workforce at its

Wichita, Kansas base.

Economists estimate the production suspension could slice at least half a percentage point from first-quarter GDP growth.

In December, overall orders for durable goods, items ranging from toasters to aircraft that are meant to last three years or more, rebounded 2.4% after tumbling 3.1% in the prior month.

They were boosted by a 7.6% surge in orders for transportation equipment, which followed an 8.3% drop in November. Orders for defense aircraft and parts soared 168.3% last month, offsetting

a 74.7% plunge in demand for civilian aircraft. Boeing reported on its website that it had received only three commercial aircraft orders in December, down from 63 in November. December is

normally a strong month for orders.

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