Drop in Nov. orders backs Fed claim that '09 will be tough for U.S.

The U.S. Federal Reserve thinks the American economy will get worse in the first half of 2009 despite Washington's rescue efforts, according to minutes of a recent meeting of the central bank's governors released Tuesday.

November's new orders for domestic manufacturers fell by twice as much as economists had expected, the U.S. Commerce Department also said on Tuesday.

In the minutes from its meeting on Dec. 11, the open market committee of the Federal Reserve Board said a conspiracy of factors, including a dormant housing market, constricted financial credit and plummeting consumer confidence, has led to a dismal outlook for the American economy for 2009.

Economic prospects should pick up marginally towards the end of the year, the governors said.

The Federal Reserve said the American economy should grow close to its potential in 2009, considered by most economists to be a reduction rather than an increase in annual GDP.

Worse still, the factors responsible for the fall could drive the economy down further, the Federal Reserve members said during the December discussion after which the board announced a target for the fed funds rate at between zero and one-quarter of a percentage point.

"Meeting participants generally agreed that the uncertainty surrounding the outlook was considerable and that downside risks to even this weak trajectory for economic activity were a serious concern," the Fed said in the minutes of the meeting.

Factory order fumble

As if to back up the Federal Reserves worries, new U.S. factory orders in November fell by 4.6 per cent, nearly twice as much as the 2.5 per cent drop analysts had predicted for the month.

November's slip was the fourth straight period in which manufacturing orders declined but the rate of shrinkage was actually an improvement over October's six per cent collapse.

Demand for durable goods — those big-ticket items expected to last at least three years — dropped by 1.5 per cent in November compared to October.

That feeble showing, however, also was a marked improvement versus October's demand shrinkage of 8.5 per cent.