Factory index improves, but spending and incomes fall
WASHINGTON -- Monday brought a modest shift in the recent litany of weak economic news:
• In positive news, a key gauge of manufacturing improved for the first time since June, indicating that manufacturing's decline slowed last month.
• But consumer spending fell for a record sixth straight month in December as recession-battered households boosted their savings rates to the highest level since May.
• Construction spending fell for a third month in December.
The Institute for Supply Management said its index of national manufacturing activity rose to 35.6 in January from a nearly three-decade low 32.9 in December, exceeding economists' median forecast of 32.6.
A reading below 50 indicates contraction in the manufacturing sector, so it's still a 12th straight month of contraction.
The report, based on a survey of ISM members, covers such indicators as new orders, production, employment, inventories, prices, and export and import orders.
While the increase in the index for January showed significant improvement, "it is still a sign of continuing weakness in the (manufacturing) sector," said Norbert Ore, chairman of the institute's manufacturing business survey committee. Executives surveyed said "it will take a recovery in automobiles and housing for the manufacturing sector to once again prosper."
On a somewhat positive note, Ore said the index continues to show significant decline in the prices manufacturers pay for materials, which ultimately should help consumers.
Industries reporting growth in January included textiles, petroleum and coal products, according to the survey. Nonmetallic mineral products, electrical equipment, appliances, paper products, and plastics and rubber all contracted last month.
The Commerce Department said personal consumption spending, which accounts for the largest portion of total economic activity, dropped 1% in December. That was slightly worse than the 0.9% decline economists expected.
And incomes, reflecting a wave of layoffs, fell for a third straight month, dropping 0.2%.
