Consumer Spending, Manufacturing Show Gains

By:
Peter King | March 01, 2010

Consumer spending rose by half a percent in January, even as disposable income fell by nearly the same margin, according to new figures released today by the Commerce Department.

Personal consumption expenditures increased by $52.4 billion, the fourth consecutive month that consumer spending has increased. At the same time, disposal income declined by 0.4 percent, reflecting an increase in nonwithheld federal income taxes.
 
Personal income increased 0.1 percent for the month, increasing for the sixth consecutive month, although at a lower rate than the 0.4 percent economists had expected. Overall, wages and salaries increased in January, while investment income declined. Over the past half year, personal income has increased at an annual rate of 3.2 percent.
 
Meanwhile, manufacturing activity rose in February for the seventh consecutive month, according to the Institute for Supply Management. The Institute’s benchmark Purchasing Managers Index (PMI) stood at 56.5, reflecting somewhat slower growth than January’s 58.4, but still exceeding the 50 percent level that indicates growing manufacturing activity.
 
The 56.5 percent level in the PMI corresponds to an annual rate of increase of 4.9 percent in gross domestic product, the report said.
 
Manufacturing employment increased for the third consecutive month, the report said, with the employment index rising 2.8 percentage points to 56.1 percent, indicating manufacturers are hiring to meet increasing demand. New orders were up for the eighth consecutive month, to an index of 59.5 though at a lower rate than January’s new orders index of 65.9. Again, figures above 50 percent indicate growth; below 50 percent reflect contraction.
 
Both trends are hopeful signs of an improving economy, although growth remains slow and many indicators are mixed. Consumer attitudes regarding the economy remain gloomy, which may impact spending in the coming months.
 
The Commerce Department also reported today that spending on private construction, which is considered a major economic driver, fell slightly in January, declining at an annual rate of 0.6 percent. The January figure of $884 billion reflects a 9.3 percent annual decline from the $974 billion estimated annual rate of January 2009.
 
Private residential construction posted a 1.3 percent increase for the month, to $261 billion, while nonresidential construction fell 2.1 percent to $316 billion.

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