Disappointing data on holiday shopping and an unexpected drop in orders for costly manufactured goods, seen in reports released on Tuesday, showed the US economy sputtering as the year drew to a close.
Orders for durable goods - items intended to last three or more years - slid 1.4 per cent in November, the Commerce Department said, a decline economists pinned to an uncertain business environment as the country readied for war.
The report, which poured cold water on hopes a long slump in business spending was beginning to ease, was much weaker than expected on Wall Street, where analysts had looked for a 0.7 per cent rise. In addition, October was revised downward to a 1.7 percent gain from a earlier reported 2.4 per cent rise.
"These numbers are weak across the board," said Drew Matus, senior financial economist at Lehman Brothers. "Usually you can find something upbeat in these figures but this time there's no good news at all."
Two other dour Christmas eve reports showed sluggish holiday sales, further underscoring the economy's weakness.
In one report, the Bank of Toyko-Mitsubishi and UBS Warburg forecast holiday sales in November and December would be up an anemic 1.5 per cent over last year, the smallest gain since the banks began tracking weekly sales in 1970.
Their report showed chain store sales rose just 0.1 per cent in the week ended December 21 - the Saturday before Christmas and the busiest shopping day of the year - from the prior week.
A separate report from Instinet Research showed sales at major US chain stores inched up 0.2 per cent in the three weeks ended December 21, compared with the same period last month.
"The bottom line is, the (holiday sales) performance is likely to be the weakest on record," said Michael Niemira, retail analyst with Bank of Tokyo-Mitsubishi.
The batch of data soured the mood of investors. The Dow Jones industrial average closed down 45 points at 8448 and the tech-heavy Nasdaq Composite slid nine points to 1372. At the same time, Treasury prices climbed on the view the Federal Reserve would hold interest rates lower longer to help the economy.
Citing a need to aid the economy and combat terrorism, the Bush administration on Tuesday asked Congress to raise the government's debt limit from the current $6.4 trillion. The US budget deteriorated when the economy fell into recession last year, resulting in the first deficit after four years of surpluses.
The Commerce Department said orders for capital goods excluding defence and aircraft, which is viewed as a proxy for business spending plans, fell 2.2 per cent. The drop followed a strong 5.9 per cent October advance that had raised hopes business investment was picking up.
A collapse in spending by businesses on plants and equipment, which had boomed in the 1990s, led the economy into recession last year and a turnaround in this area is seen as crucial for a sustained recovery.
Economists said the uncertainties surrounding the possible economic impact of a potential US war with Iraq has made businesses reluctant to increase their spending.
"There is an underlying need for capital investment but in this atmosphere of uncertainty companies don't mind falling behind a little bit and just waiting till things clear up," RBS Greenwich Capital Markets economist Stephen Stanley said.
Fed officials have expressed hope that once the fog of war - or possible war - lifts, the economy would rise as well.
"Any significant fall in the current geopolitical and other risks should noticeably improve capital outlays, the indispensable spur to a path of increased economic growth," Fed Chairman Alan Greenspan said last week.
The report showed sharp drops in demand for civilian aircraft and autos, which pulled orders for transportation equipment down by 1.6 per cent in November. Even excluding that fall, overall durables goods orders were off 1.3 per cent.
Computers and electronic products was the only durable goods category that managed to eke out a gain in orders last month, a 0.3 per cent rise that built on a 3.5 per cent October increase. November's improvement came despite a 3.7 per cent drop in computer orders.
With business spending in the doldrums, the economy has relied more than usual on consumers to fuel growth, but hopes strong holiday shopping would offer a boost have faded.
Sales stalled after a strong Thanksgiving start, and many retailers including the world's largest, Wal-Mart Stores Inc., have since posted disappointing numbers.
Toy retailer FAO Inc. has been among the biggest casualties of the holiday season, saying on Monday it would close nearly a quarter of its 253 stores as it worked to avoid bankruptcy.
Another sign retailers are struggling came from discount chain Target Corp., which said late on Monday that sales in stores open longer than a year were "well below plan" for December.
In the wake of Tuesday's weak sales reports, analysts cut earnings estimates for retailers ranging from Wal-Mart to upscale jeweller Tiffany & Co. Inc.