Jump in factory growth lifts hopes for economy

WASHINGTON — Busier factories and growing optimism among consumers could help the U.S. economy withstand the drag from government spending cuts and tax increases this year.

Manufacturing grew in February at the fastest pace in 20 months, according to a report Friday from the Institute for Supply Management. And a survey from the University of Michigan showed that consumer sentiment rose last month to its highest level since November.

The two reports follow other data that show strength in job growth and the housing market. Americans even spent a bit more in January compared with December, despite a sharp drop in income that partly reflected higher taxes. "Consumers are spending, confidence is rising, and manufacturing activity is accelerating," Joel Naroff, president of Naroff Economic Advisors, said in a note to clients. "Just about all of today's reports point to an economy on the rise."

Businesses and consumers appear to be shrugging off changes in federal policy that will likely slow the economy.

In January, Congress and the White House struck a deal that allowed Social Security taxes to rise on most Americans. The deal also raised income taxes for the nation's top earners.

And across-the-board spending cuts began on Friday. The cuts could reduce government purchases and lead to temporary layoffs of government employees and contractors. They're expected to shave about a half-percentage point from economic growth this year.

"Many Americans are tired of the political wrangling and bickering," Chris Christopher, an economist at IHS Global Insight, said. "A certain level of political crisis fatigue has set in."

The economic data Friday was mostly positive:

  • The Institute for Supply Management said its index of factory activity rose last month to 54.2, the highest since June 2011. Any reading above 50 indicates growth. The report showed a jump in new orders, higher production and more hiring at factories. Manufacturing has grown for three-straight months.
  • The University of Michigan measure of consumer sentiment rose to 77.6, the second-straight monthly increase. The rebound in consumer confidence, seen in both the Michigan survey and another survey from Conference Board, suggests that some consumers have begun to adjust to smaller paychecks.
  • Consumers increased spending 0.2 percent in January from December but cut back on major purchases such as autos and appliances.

Income plunged 3.6 percent, though it followed a jump in December driven by dividends and bonuses paid early to avoid higher income taxes.


Reader Reaction
We reserve the right to remove any content at any time from this Community, including without limitation if it violates the Community Rules. We ask that you report content that you in good faith believe violates the above rules by clicking the Flag link next to the offending comment or fill out this form. New comments are only accepted for two weeks from the date of publication.
COUPON OF THE WEEK