The Institute for Supply Management (ISM) said its index of national factory activity fell to 55.5 last month from 58.7 in November.
A reading above 50 indicates expansion in the manufacturing sector, and the reading remains well above its two-year average. That means the slowdown appears unlikely to derail a broader strengthening of the US economy.
"These were readings that in any ordinary time would be considered excellent," Guy Berger, an analyst with RBS Securities, said in a note to clients.
Prices for US Treasuries rose and the US dollar was up against a basket of currencies after the data. US stock indexes also were trading higher.
Still, the data suggests weakness abroad and a surge in the value of the dollar, which is near its strongest level since 2005, are inflicting pain on key parts of the US economy. A gauge of factory exports fell to 52 in December from 55 in the previous month.
At the same time, the weakness in global demand also has pushed oil prices lower, enabling American consumers to spend more and boost the US economy.
The economy went on a tear in the third quarter, when it grew at a 5 per cent annual rate, and many economists expect a generally strong showing in the second half of 2014 will continue into this year, leading the US Federal Reserve to raise interest rates sometime in 2015.
"It makes sense that manufacturing activity should be coming off the boil," said Paul Dales, an economist with Capital Economics, "But the strength of domestic demand will ensure that industry and the wider economy still perform particularly well in 2015."
The data suggested that employment in the factory sector rose more in December than analysts had expected, marking the 18th consecutive month of expansion in manufacturing employment sentiment. A separate report showed US construction spending unexpectedly fell in November, held back by a drop in government outlays and by less money spent by businesses on projects other than homes.
Construction spending fell 0.3 per cent, the first decline since June, to an annual rate of $975 billion, the Commerce Department said.
Copyright: Thomson Reuters 2015