WASHINGTON (Reuters) — U.S. factory
activity rebounded last month from an eight-month low and consumer
spending increased more than expected in January, suggesting the
economy was regaining some strength after abruptly slowing in recent
months.
The signs of a comeback, also evident in a surprise gain in
construction spending, should bolster the Federal Reserve's resolve
to keep scaling back its massive monetary stimulus. Reports from
automakers also showed 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 as did supplier deliveries, inventories and
order backlogs. However, production slipped for a third straight
month and contracted for the first time since August 2012.
Manufacturers said cold weather was still hindering operations:
hampering logistics, causing back-ups at ports and disrupting
supplies of raw materials. Frigid temperatures across large parts of
the country have been blamed for weighing on growth at the start of
the year.
Financial markets were little moved by the data as investors focused
on escalating tensions in Ukraine.
In a separate report, the Commerce Department said consumer spending
increased 0.4 percent in January after a 0.1 percent gain in
December. Economists had expected consumer spending, which accounts
for more than two-thirds of U.S. 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 President Obama's signature
2010 healthcare law went into effect.
AUTOMATIC STABILIZER
Weak economic data had led to speculation the Fed might pause in its
efforts to reduce economic stimulus. But economists said Monday's
data and forecasts for some improvement in employment in February
made that less likely.
"We have argued before that higher demand for utilities will work as
an automatic stabilizer for consumer spending during the unusually
cold winter months," said Harm Bandholz, chief U.S. economist at
UniCredit Research in New York. "It should dispel concerns about a
too-dramatic economic slowdown."
The consumer data and a surprise 0.1 percent rise in construction
spending in January led Barclays to raise its forecast for
first-quarter economic growth by four-tenths of a percentage point
to a 2.2 percent annual rate. Macroeconomic Advisers lifted its
estimate by three-tenths to a 1.7 percent pace.
Data ranging from housing to industrial production and hiring have
suggested the economy softened early in the first quarter after
expanding at a modest 2.4 percent rate in the final three months of
last year.
Apart from the impact of the cold weather, businesses have been
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 have also crimped growth.
While spending on services accelerated in January, spending on goods
fell for a second straight month. However, a small rise in auto
sales last month offered hope that outlays on goods have picked up.
In January, income rose 0.3 percent, boosted by government transfers
for healthcare payments and a cost of living adjustment for Social
Security recipients. That offset the drag from the expiration of
jobless benefits for more than 1 million long-term unemployed people
at the end of December.
Inflation pressures were lacking. A price index for consumer
spending rose 0.1 percent after increasing 0.2 percent in December.
Over the past 12 months, prices rose 1.2 percent, compared to an
advance of 1.1 percent in December.
Excluding food and energy, prices edged up 0.1 for a seventh
straight month. These core prices were up just 1.1 percent from a
year ago, after rising 1.2 percent in December.
Both measures remain well below the Fed's 2 percent target.
"Muted price pressure will give the Fed confidence to keep interest
rates low until there is a pickup in hiring and wages," said Jay
Morelock, an economist at FTN Financial in New York.
(Reporting by Lucia Mutikani; editing by
Paul Simao and David Gregorio)
