US factory, spending data hint at economic rebound

WARMING UP?:Signs that the largest economy in the world is recovering buoyed growth forecasts, but left investors cold amid anxiety over the unrest in Ukraine


Wed, Mar 05, 2014 - Page 15

US factory activity rebounded last month from an eight-month low and consumer spending increased more than expected in January, suggesting that the world’s No. 1 economy is regaining some strength after slowing abruptly in recent months.

Signs of a comeback are also evident in a surprise gain in construction spending and should bolster the US Federal Reserve’s resolve to keep scaling back its massive monetary stimulus program. Reports from automakers also showed that sales edged up from January’s weather-depressed levels.

“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 in January to 51.3, its weakest reading since May. A reading above 50 indicates expansion.

New orders bounced back last month, as did supplier deliveries, inventories and order backlogs, but production slipped for a third straight month to post its first contraction since August 2012.

Manufacturers said the cold weather was still hindering operations by hampering logistics, causing back-ups at ports and disrupting the supply of raw materials. Frigid temperatures across large parts of the US have been blamed for weighing on growth at the start of the year.

However, financial markets were little moved by the positive data, as investors focused on escalating tensions in Ukraine.

In a separate report, the US Department Commerce said that consumer spending increased 0.4 percent in January after recording a 0.1 percent gain in December last year. Economists had expected consumer spending, which accounts for more than two-thirds of US economic activity, to rise only 0.1 percent.

The increase in spending was driven by a 0.9 percent jump in outlays for services, the biggest gain since October 2001.

The rise likely reflected a surge in demand for utilities amid the cold weather, as well as higher healthcare spending as US President Obama’s signature 2010 healthcare law went into effect.

The consumer data and a surprise 0.1 percent rise in construction spending in January led Barclays PLC to raise its forecast for first-quarter economic growth by four-tenths of a percentage point to a 2.2 percent annual rate, while Macroeconomic Advisers lifted its estimate by three-tenths of a percentage point to 1.7 percent.

Data ranging from housing to industrial production and hiring have suggested that the US’ economy softened early in the first quarter after expanding at a modest 2.4 percent rate in the final three months of last year.