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Factory growth, consumer spending counter downbeat reports

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WASHINGTON — Factory growth picked up last month and consumers spent more than analysts expected in January, countering some recent downbeat reports that indicated the economic recovery was weakening.

Severe winter weather appeared to cut both ways in the data released Monday.

There were signs it hampered factory production even as new orders and inventories increased, according to the Institute of Supply Management.

But some of the increase in consumer spending came from higher heating and utility bills as households dealt with bitter cold in much of the country, said Chris G. Christopher Jr., director of consumer economics at IHS Global Insight.

"Despite all the winter economics, it points to better than expected income, wage and spending growth," Christopher said about the Commerce Department's report. "However, a significant amount of the spending occurred on necessities and not on discretionary items."

Spending was up 0.4% after a 0.1% gain the previous month, the Commerce Department said. The December figure was revised down sharply from the initial estimate of 0.4%.

Incomes, which had been flat in December, rose 0.3% in January, meaning consumers had more money to spend.

Economists had projected a 0.1% rise in spending and a 0.2% increase in personal income in January.

The increase in consumer spending was the best since September and came in the face of bitter cold and snow in much of the country that has helped lead to other lackluster economic data recently.

On Friday, the Commerce Department cut its estimate of fourth-quarter growth to a 2.4% annualized rate from an initial estimate of 3.2%, in part, because of a downward revision in consumer spending.

Consumer spending, including monthly mortgage payments, accounts for about 70% of the U.S. economy.

Manufacturing is a key business sector, and ISM's widely watched purchasing managers index rose to 53.2 in February, up from 51.3 the previous month. A reading above 50 indicates the sector is expanding.

The January figure was down sharply from 56.5 in December and marked a seven-month low. The index had averaged 56.2 through the final half of last year as the manufacturing sector strengthened.

Last month's increase exceeded analyst expectations of only a slight rise to about 51.9.

New orders and inventories increased after tumbling the previous month. But several survey respondents said the severe winter weather was hurting their businesses, as it did in January.

One unnamed petroleum and coal products firm reported "bad weather hampering logistics across the country," the ISM said.

The weather appeared to be a factor in slowing production at factories.

The ISM's production index fell sharply to 48.2 last month, from 54.8 in January, indicating that that segment of manufacturing businesses was contracting for the first time in 18 months.

The production figure was the lowest since May 2009.

The employment index did not improve in February, remaining at 52.3. The index was 55.8 in December.

jim.puzzanghera@latimes.com

Copyright © 2014, Los Angeles Times
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