By Christopher S. Rugaber and Tali Arbel
AP Business Writers
New York — Hopes that America’s factories will help drive the economic recovery gained support Monday from news that manufacturing activity grew in January to its strongest point since 2004.
Other data, though, offered a reminder that the recovery remains fragile. Construction spending sank in December to its lowest level in more than six years. And gains in personal income and spending were too modest in December to suggest that consumers can fuel a strong rebound.
“Right now we’re getting a recovery,” said Michael Gregory, a senior economist with BMO Capital Markets. “But you have to be skeptical. This kind of performance cannot be sustained unless we get those other areas that are still weak in the economy to contribute to growth — housing, construction, real consumer spending.”
Manufacturing activity has become a pocket of strength, though some of it flows from temporary factors such as customers needing to add to depleted stockpiles of goods.
According to the Institute for Supply Management, the manufacturing index read 58.4 in January, compared with 54.9 in December. It was the sixth straight month of expansion. Analysts polled by Thomson Reuters had expected a level of 55.5. A reading above 50 indicates growth.
U.S. manufacturers have been pumping up production to feed their customers’ depleted stockpiles. According to the ISM, manufacturers’ inventories contracted at a slower rate in January. Still, their customers’ stockpiles fell to an all-time low.
As their customers try to restock their shelves, manufacturers need to ramp up production to match their demands. That could mean hiring more workers, which would help invigorate the economic rebound. ISM’s employment measure grew last month.
“Production growth is finally beginning to tax existing work forces to the point where companies need to expand employment, and, critically, have enough confidence to do so,” said Pierre Ellis of Decision Economics.
According to the Commerce Department report on construction, homebuilding fell by the steepest amount in seven months, evidence that housing remains a weak spot in the economy. Spending on new homes, office buildings and highways fell 1.2 percent to a seasonally adjusted annual rate of $902.5 billion, the lowest since August 2003. That was much worse than analysts’ expectations of a 0.5 percent drop.
Housing activity was weak in December in part because a new homebuyer tax credit was originally scheduled to expire in November, and many buyers rushed to complete purchases before the deadline. Congress has extended the credit through April and expanded it.
According to a separate Commerce report, personal incomes rose more than expected in December, and consumer spending increased for the third straight month. But income growth was spurred by a one-time Social Security payment. Wages and salaries rose only 0.1 percent, or $9.1 billion, after increasing 0.4 percent, or $27 billion, in November.
Many households are reluctant to increase spending amid tight credit and high unemployment. Widespread joblessness is also limiting wage and salary growth.
Incomes rose 0.4 percent, the sixth increase in a row. Consumer spending, meanwhile, increased by 0.2 percent, less than analysts’ forecasts of 0.3 percent. The department also revised November’s figure to show a 0.7 percent increase in spending, higher than the initial estimate of 0.5 percent.