Manufacturing, Other Data Point to Improving Economy

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U.S. Manufacturing Growth Gains Steam in February
Nick Ut/AP
By Lucia Mutikani

WASHINGTON -- U.S. factory activity rebounded from an eight-month low in February and consumer spending rose more than expected in January, suggesting the economy was regaining some strength after a recent slowdown.

The signs of momentum were also evident in other reports Monday that showed a brisk increase in automobile sales in February and a surprise gain in construction spending in January, despite unseasonably cold weather.

"The economy is beginning the slow process of digging its way out of the weather-induced slowdown of recent months," said Millan Mulraine, deputy chief economist at TD Securities in New York. "This upward momentum should be sustained in the coming months"

The Institute for Supply Management said its index of national factory activity rose to 53.2 last month after slumping to 51.3 in January, which was the weakest reading since May.

A reading above 50 indicates expansion in the factory sector, %VIRTUAL-article-sponsoredlinks%and February's rise reversed two straight months of slow growth.

New orders bounced back last month as did supplier deliveries, inventories and order backlogs. However, production fell, notching its third straight month of declines and contracting for the first time since August 2012.

In a separate report Monday, the Commerce Department said consumer spending increased 0.4 percent after gaining 0.1 percent in December.

Economists polled by Reuters had forecast consumer spending, which accounts for more than two-thirds of U.S. economic activity, edging up 0.1 percent in January.

January's increase in spending was driven by a 0.9 percent jump in services, the biggest gain since October 2001, after rising only 0.1 percent.

That likely reflected a increase in demand for utilities as Americans tried to keep warm during an unusually cold spell, as well as increased spending on health care after President Obama's signature 2010 health care law came into effect.

"Net net, consumers are off to a good start in January even if it is probably due in large part to higher home heating bills," said Chris Rupkey, chief financial economist at Bank of Tokyo-Mitsubishi UFJ in New York.

U.S. financial markets were little moved by the data as investors around the world kept a wary eye on escalating tensions from the crisis in Ukraine.

Inflation Mute

Data related to housing, industrial production, hiring and other economic indicators have suggested that the economy hit a soft patch early in the fourth quarter.

Much of the slowdown has been blamed on the cold weather and business placing fewer orders with manufacturers, as they work through stocks of unsold goods. The end of long-term jobless benefits and cuts to food stamps is also crimping growth.

The economy grew at a 2.4 percent annual rate in the fourth quarter, sharply decelerating from the July-September quarter's inventory-driven 4.1 percent pace.

With households spending more on utilities, outlays on goods fell 0.6 percent in January. A rise in auto sales last month suggested spending on goods would rise in February.

Despite the services-driven increase in spending, inflation pressures remain muted.

A price index for consumer spending rose 0.1 percent after increasing 0.2 percent in December. During the past 12 months, prices rose 1.2 percent, compared to an advance of 1.1 percent in December.

Excluding food and energy, the price index for consumer spending edged up 0.1 percent, rising by the same margin for a seventh straight month. Core prices were up 1.1 percent from a year ago, after rising 1.2 percent in December.

Both inflation measures remain stuck below the Federal Reserve's 2 percent target.

When adjusted for inflation, consumer spending rose 0.3 percent after falling 0.1 percent in December. The rise in so-called real spending could boost first-quarter GDP.

Income rose 0.3 percent in January after being flat the prior month. The drag on income from the expiration of jobless benefits for more than one million long-term unemployed people at the end of December was offset by government transfers for health care payments.

A cost of living adjustment for social security recipients also supported income in January.

Income at the disposal of households after adjusting for inflation rose 0.3 percent in January after falling 0.2 percent the previous month.

With spending a touch above income growth, the saving rate, the percentage of disposable income households sock away, was unchanged at 4.3 percent in January. However, actual saving fell to its lowest level since March.

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Manufacturing, Other Data Point to Improving Economy
The gross domestic product measures the level of economic activity within a country. To figure the number, the Bureau of Economic Analysis combines the total consumption of goods and services by private individuals and businesses; the total investment in capital for producing goods and services; the total amount spent and consumed by federal, state, and local government entities; and total net exports. It's important, because it serves as the primary gauge of whether the economy is growing or not. Most economists define a recession as two or more consecutive quarters of shrinking GDP.
The CPI measures current price levels for the goods and services that Americans buy. The Bureau of Labor Statistics collects price data on a basket of different items, ranging from necessities like food, clothing and housing to more discretionary expenses like eating out and entertainment. The resulting figure is then compared to those of previous months to determine the inflation rate, which is used in a variety of ways, including cost-of-living increases for Social Security and other government benefits.
The unemployment rate measures the percentage of workers within the total labor force who don't have a job, but who have looked for work in the past four weeks, and who are available to work. Those temporarily laid off from their jobs are also included as unemployed. Yet as critical as the figure is as a measure of how many people are out of work and therefore suffering financial hardship from a lack of a paycheck, one key item to note about the unemployment rate is that the number does not reflect workers who have stopped looking for work entirely. It's therefore important to look beyond the headline numbers to see whether the overall workforce is growing or shrinking.
The trade deficit measures the difference between the value of a nation's imported and exported goods. When exports exceed imports, a country runs a trade surplus. But in the U.S., imports have exceeded exports consistently for decades. The figure is important as a measure of U.S. competitiveness in the global market, as well as the nation's dependence on foreign countries.
Each month, the Bureau of Economic Analysis measures changes in the total amount of income that the U.S. population earns, as well as the total amount they spend on goods and services. But there's a reason we've combined them on one slide: In addition to being useful statistics separately for gauging Americans' earning power and spending activity, looking at those numbers in combination gives you a sense of how much people are saving for their future.
Consumers play a vital role in powering the overall economy, and so measures of how confident they are about the economy's prospects are important in predicting its future health. The Conference Board does a survey asking consumers to give their assessment of both current and future economic conditions, with questions about business and employment conditions as well as expected future family income.
The health of the housing market is closely tied to the overall direction of the broader economy. The S&P/Case-Shiller Home Price Index, named for economists Karl Case and Robert Shiller, provides a way to measure home prices, allowing comparisons not just across time but also among different markets in cities and regions of the nation. The number is important not just to home builders and home buyers, but to the millions of people with jobs related to housing and construction.
Most economic data provides a backward-looking view of what has already happened to the economy. But the Conference Board's Leading Economic Index attempts to gauge the future. To do so, the index looks at data on employment, manufacturing, home construction, consumer sentiment, and the stock and bond markets to put together a complete picture of expected economic conditions ahead.
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