Consumer spending dips, savings rate surges

Associated Press

Fresh signs emerged Monday that the recession was letting up.

Manufacturing’s slide is slowing. Builders are boosting spending on construction projects -- including homes. And consumers aren’t cutting back as much as some had feared.

A trio of reports gave Wall Street a big lift on the same day that industrial icon General Motors Corp. filed for bankruptcy protection.

“What looked like a flicker of light at the end of the tunnel is now starting to look like a beacon,” said Richard Yamarone, economist at Argus Research. “We are no longer in the deep throes of recession.”


Economists were especially heartened by a report from the Institute for Supply Management that showed U.S. manufacturing activity shrinking at a slower pace in May. Reports from Asia and Europe indicated similar improvements in their manufacturing sectors.

The institute’s index came in at 42.8 -- its highest since September and up from 40.1 in April. A reading below 50 still indicates that activity contracted, but the figure surpassed economists’ forecasts.

Also, an index of new orders placed with U.S. factories rose to 51.1 in May. It was the first time this barometer had grown since November 2007, the month before the recession began.

And businesses’ inventories shrank, suggesting supplies will soon need to be replenished. That would boost factory production, aiding overall economic activity.

“The data add to mounting evidence of an abatement in the deep factory-sector recession,” said Cliff Waldman, economist at Manufacturers Alliance/MAPI, a manufacturing research group.

“The worst has clearly passed for U.S. factories,” he said.

Another report, from the Commerce Department, said construction spending rose a surprising 0.8% in April. Economists had been expecting a 1.2% decline.

A third report showed consumers trimmed spending by 0.1% in April, slightly less than the 0.2% reduction economists were forecasting. Still, it marked the second straight month that consumers cut back, a reminder that many shoppers remained wary.