The drop was unexpected. Economists had predicted a gain of 1.8 percent in orders for goods expected to last at least three years.
Fresh orders for long-lasting goods fell in two months out of the final quarter of 2013, dropping 2 percent in October and rising 2.6 percent in November.
Excluding transportation items, new orders dropped 1.6 percent in December. Taking defense orders out of the mix left new durable good orders at a decline of 3.7 percent.
New orders fell by $10.3 billion to $229.3 billion in the month. Most of that was in transportation, where orders fell by $7.7 billion or 9.5 percent to $73.1 billion. Transportation orders, which include contracts for trains, trucks, jets and ships, can quickly sway the data.
Shipments of durable goods fell after four consecutive gains, slipping by $4.5 billion to $232.8 billion.
Unfilled orders, up 10 of the past 11 months, rose 0.4 percent in the month or by $3.9 billion to reach nearly $1.1 trillion.
Capital goods orders, which represent businesses investing in themselves, fell 5 percent in the month or by $4.3 billion to reach $82.5 billion.
Shipments of capital goods rose by 0.8 percent to $75.4 billion and unfilled capital goods orders rose by 1.1 percent to $642.7 billion, the department said.
Notable deaths of 2014 [PHOTOS]