Jump in factory growth lifts hopes for US economy

WASHINGTON (AP) — Busier factories and growing optimism among consumers could help the US economy withstand the drag from government spending cuts and tax increases this year.

Manufacturing grew in February at the fastest pace in 20 months, according to a report Friday from the Institute for Supply Management. And a survey from the University of Michigan showed that consumer sentiment rose last month to its highest level since November.

The two reports follow other data that show strength in job growth and the housing market. Americans even spent a bit more in January compared with December, despite a sharp drop in income that partly reflected higher taxes.

“Consumers are spending, confidence is rising and manufacturing activity is accelerating,” Joel Naroff, president of Naroff Economic Advisors, said in a note to clients. “Just about all of today’s reports point to an economy on the rise.”

Businesses and consumers appear to be shrugging off changes in federal policy that will likely slow the still-weak economy.

In January, Congress and the White House struck a deal that allowed Social Security taxes to rise on most Americans. The deal also raised income taxes for the nation’s top earners.

And across-the-board spending cuts are set to begin Friday. The cuts could reduce government purchases and lead to temporary layoffs of government employees and contractors. They’re expected to shave about a half-percentage point from economic growth this year.

“Many Americans are tired of the political wrangling and bickering,” Chris Christopher, an economist at IHS Global Insight, said. “A certain level of political crisis fatigue has set in.”

The economic data Friday was mostly positive:

• The Institute for Supply Management said its index of factory activity rose last month to 54.2, the highest since June 2011. Any reading above 50 indicates growth. The report showed a jump in new orders, higher production and more hiring at factories. Manufacturing has grown for three straight months, indicating that factories could help the economy after slumping through most of 2012.

• The University of Michigan measure of consumer sentiment rose to 77.6, the second straight monthly increase. The rebound in consumer confidence, seen in both the Michigan survey and another survey from Conference Board, suggests that some consumers have begun to adjust to smaller paychecks.

• Consumers increased spending 0.2 percent in January from December but cut back on major purchases such as autos and appliances. Income plunged 3.6 percent, though it followed a jump in December driven by dividends and bonuses paid early to avoid higher income taxes. The increase in Social Security taxes also lowered after-tax income.

• Spending on US construction projects fell in January by the largest amount in 18 months, the Commerce Department said. Still, that the decline followed a nearly 10-percent increase in construction spending in 2012, the first annual gain after five years of declines.