In another sign of a recovering economy, U.S. orders for machinery and factory goods jumped in January as businesses invested for future growth.
The Commerce Department said U.S. companies upped their orders for such goods by 7.2% in January from the month before, the biggest jump in more than a year.
Economists watch investment in capital goods as a sign of business confidence. Despite tax hikes and the threat of automatic spending cuts known as sequestration, the increases indicate that companies continued to raise production even after the holidays.
The sector does not include aircraft and defense orders, however, which could see a sharp drop if sequestration prompts the Defense Department to sharply cut its budget. Drops in aircraft orders already sent total factory orders down 2% in January.
It remains to be seen how consumers will adjust in the long run to higher taxes. A surging stock market, revival of the housing market and steady if not large gains in the job market could help soften the consequences of spending cuts and smaller paychecks.
Follow Shan Li on Twitter @ShanLi