U.S. Factory Output Rebounds in January

Factory production rebounded last month after a four-month slump and consumer spending and home building accelerated in December, fortifying an economic expansion that shows no signs of quitting.

The National Assn. of Purchasing Management said Monday that its index of manufacturing activity rose to 49.5% in January from 45.3% in December--the first increase in four months and the highest level since May. Readings above 50 mean more manufacturers reported expanded production than those saying they’re cutting back.

Consumer spending rose 0.8% in December--the strongest monthly pickup since a 1% rise in May, the Commerce Department said in its report Monday. Although incomes gained a solid 0.5%, the spending rise was partly financed by dipping into savings that shrank at an $8-billion annual rate, or by 0.1%, in December, after growing $7.4 billion, or 0.1%, in November.

For all of 1998, the savings rate slipped to 0.5%--meaning Americans saved half a cent of each dollar earned. It was the weakest performance since savings contracted by 21% in 1933, amid the Great Depression.

Analysts discounted the low savings rate, however, noting instead that confident consumers helped push the economy into a peacetime-record 93rd month of growth during December and gave the laggard manufacturing sector a needed boost early in 1999.

Construction spending rose 1.7% in December, its seventh straight monthly increase, the Commerce Department said. All segments showed gains, with residential construction rising by the largest dollar amount.

Although the NAPM index remained below the 50% level that is taken to signal expansion, it was a significant rebound that showed the worst might be over for the industrial sector.

“It would appear that manufacturing has seen its low point, though Brazil may pose some problems down the road,” said economist Lynn Reaser of NationsBank Inc. in Jacksonville, Fla.

She said robust domestic demand was tipping the scales toward a continued strong expansion at the same time the drag from weaker exports to Asia levels out.

“There was a real question whether problems on the manufacturing side, which is less than one-fifth of the economy, would pull the rest of the economy down,” Reaser said. “Now it appears that the other 80% or so of the economy is pulling manufacturing out of its slump.”

The rebound in NAPM’s report lends credence to wide expectations that the U.S. economic expansion will continue. The current expansion entered its 95th month on Monday--the longest in peacetime and closing in on the all-time record of 106 months set in the 1960s.

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Purchasing Managers Index

Tracks overall business activity of more than 300 industrial companies.

January: 49.5%

Source: National Assn. of Purchasing Management