3 Reports Spotlight Economy’s Strength
The national economy carried its strong momentum into the second quarter as factories cranked up activity, builders boosted construction spending to a record high and consumers opened their pocketbooks ever wider.
But inflation picked up too. The information was contained in a trio of economic reports Monday.
“Households and corporations are still very active and are creating economic momentum, which is tremendously encouraging news for the economy,” said Carl Tannenbaum, chief economist at LaSalle Bank. “The only dark cloud comes from the news on prices, which are going up.”
A report from the Institute for Supply Management showed that manufacturing activity grew briskly. The group’s manufacturing index jumped to 57.3 in April from 55.2 in March, the strongest showing in six months.
The report also showed that prices were rising not only for energy but also for other commodities, such as aluminum and copper.
Moreover, the sinking value of the U.S. dollar -- which fell to a seven-month low against the Japanese yen -- also raises some inflation concerns. A weaker dollar can increase the price of imported goods flowing into the United States. That in turn can give U.S. companies more leeway to boost their own prices.
In a second report, the Commerce Department said total construction spending in March climbed to $1.2 trillion, on an annualized basis, surpassing the previous record high set in February. That marked a 0.9% increase. The government also spent more on big public works projects, including power plants.
In another report from the department, consumer spending rose 0.6% in March, an improvement from February’s 0.2% increase. Consumer spending plays a key role in shaping overall economic activity.
Incomes, the fuel for future spending, advanced 0.8% in March. That was up from a 0.3% increase in February and was the largest gain since September.
Income includes government payments as well as wages. Payments from the new Medicare prescription drug plan had the effect of helping to boost overall income in March.
Wages, meanwhile, grew by a moderate 0.4% for the second month in a row. An inflation gauge tied to the consumer report revealed that inflation accelerated.
The measure showed that prices -- excluding energy and food -- went up 0.3% in March, compared with a tiny 0.1% increase in February. Over the last 12 months, these “core” prices rose by 2% -- considered the upper boundary of the Fed’s comfort zone for inflation.
The inflation reading didn’t include the big run-up in oil prices seen two weeks ago.
For the first quarter, the economy grew at a 4.8% pace, the fastest in 2 1/2 years, the government reported last week. A big pickup in consumer spending figured prominently in the strong showing. The first quarter’s performance was a vast improvement over the feeble 1.7% growth rate seen in the final quarter of 2005.
