Consumer spending rises 0.5%

U.S. consumer spending was strong in January and factory activity unexpectedly rose last month, according to reports Thursday that eased fears of economic weakness and showed inflation still alive.

The Institute for Supply Management said its index of national manufacturing rose to 52.3 from 49.3 in January, bucking expectations by breaking north of the 50 level that separates growth from contraction.

Separate data from the Commerce Department showed that consumer spending rose a solid 0.5%, while incomes gained 1%, their biggest jump in a year.

Although the big increase in incomes suggested a solid underpinning for the economy, the department noted that it reflected a number of special factors, including Wall Street bonuses. Without those factors, incomes would have been up 0.4%.

Still, analysts saw the data as a signal that the U.S. economy was far from falling off the rails.

“The consumer remains the rock of the economy. Households bought tons more of all types of goods in January,” said Joel Naroff, chief economist at Naroff Economic Advisors Inc. in Holland, Pa.

The report on spending and income showed inflation pressures still lurking.

Core consumer prices, which exclude volatile energy and food costs, rose 0.3% in January.

The rise pushed the year-on-year gain in the so-called core personal consumption expenditures price index up to 2.3% from 2.2% in December, moving further away from the 1%-to-2% range that some Federal Reserve officials have said they prefer.

Although financial markets continue to bet the U.S. central bank will lower its benchmark short-term interest rate from its current 5.25% level by year-end, some economists said the Fed would be in no rush given the latest data.

“The Fed is probably going to hold interest rates steady for a while,” said Gary Thayer, chief economist at A.G. Edwards & Sons Inc. in St. Louis.

Although consumer spending remained strong and manufacturing activity picked up, the housing sector’s weakness continued to take a toll on the economy.

The Commerce Department said construction spending fell 0.8% in January as residential building fell for a 10th straight month.

A separate government report showed that home prices continued to rise in the fourth quarter but at a slower pace.

Data from the Labor Department on Thursday also suggested some softening in the job market, as a four-week moving average of first-time claims for unemployment insurance hit its highest level since October 2005.

And a report by employment consultants Challenger Gray & Christmas Inc. said that planned layoffs rose 33% to 84,014 in February as weakness in the housing market and auto industry appeared to spread into other sectors.