Production, New Orders Strong Despite Asian Woes

U.S. manufacturing strengthened in February as production and new orders rose, and construction spending topped expectations--signs that domestic demand is more than offsetting any drop in exports to Asia.

The National Assn. of Purchasing Management said Monday its factory index increased to 53.3 last month, its best showing since November and up from 52.4 in January. Index readings of 50 or more indicate manufacturing is expanding.

Construction spending, meanwhile, rose 0.7% in January, topping December’s 0.5% gain, the Commerce Department reported. January’s seasonally adjusted annual rate of $619.1 billion, $3 billion more than analysts had forecast and the highest in three months, was paced by housing and commercial projects.

Separately, Commerce Department figures showed that personal income increased a strong seasonally adjusted 0.6% in January, while disposable, or after-tax, income jumped 0.8%--the largest gain since June 1996. Even after adjustment for inflation, the disposable income gain remained a hefty 0.7%.

Consumer spending rose a moderate 0.4% in January, the same as in December and November, the Commerce Department said. Because after-tax income increased faster than spending, the savings rate rose to 4.2% of disposable income, the most in seven months and up from 3.9% in December.

“Confidence is high, incomes are exceeding spending, job growth remains strong; you can’t ask for a better consumer picture than that,” said Russ Sheldon, chief economist at MCM MoneyWatch in New York.

Economist Mark Vitner of First Union Corp. in Charlotte, N.C., said the purchasing managers’ report indicates “the sting from Asia’s troubles might not be as bad as widely feared.”

The report spooked the bond market because it suggested the Federal Reserve Board might be unable to rely on the impact of Asia to slow the U.S. economy to what it considers a noninflationary growth rate. It makes the prospect of an interest-rate cut from the Fed more remote.

Prices on the benchmark 30-year Treasury bond fell, lifting the yield from 5.92% late Friday to 6.00%, the highest since mid-December.

Economists said January’s advance in disposable income should help support consumer spending.

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Purchasing Manager’s Index

In billions of dollars, seasonally adjusted: Feb: 53.3%

Source: National Assn. of Purchasing Managers

Personal Income

Seasonally adjusted annual rate, in trillions of dollars.

Jan: $7.09

Source: Commerce Department