WASHINGTON - Americans spent more in January, the Commerce Department said Monday, but the increase came from a surge in spending on heating bills during the harsh winter. Spending in areas such as autos and clothing declined.
The spending report was one of three closely watched economic reports released Monday. A second Commerce Department report showed construction spending edged up 0.1 percent in January, and the Institute for Supply Management, a group of purchasing managers, said its manufacturing index rose in February from January.
Spending rose 0.4 percent in January after a 0.1 percent gain in December, the Commerce Department’s report said. The December figure was revised down from a 0.4 percent increase.
Income grew 0.3 percent in January after no increase in December.
“Consumer spending had OK momentum” in January, Brian Jones, senior U.S. economist at Societe Generale in New York, said before the report. “We expect to see better job growth in the spring. More people with jobs means more money to spend.”
The overall spending increase in January reflected a 0.8 percent jump in spending on services, the effect of higher heating bills. It was the biggest increase in spending on services since October 2001.
Spending on durable goods such as autos fell 0.3 percent. And spending on nondurable goods, covering things like clothing and food, dropped 0.7 percent.
“Spending looks great but is not,” said Ian Shepherdson,chief economist at Pantheon Macroeconomics. Without an 11.3 percent surge in spending on utility bills, Shepherdson said, consumer spending would have been close to flat.
Consumer spending is closely watched because it drives about 70 percent of economic activity. On Friday, the government said the economy grew at a 2.4 percent annual rate in the October-December quarter, down sharply from an initial estimate of a 3.2 percent rate.
Analysts said the drop in spending on goods in January as bad weather kept people from shopping might also have held down spending in February.
“Given that the weather was unusually severe in February, too, the outlook is more uncertain than usual,” said Paul Dales, senior U.S. economist at Capital Economics.
A small increase in U.S. construction spending in January indicated that strength in housing helped to offset declines in nonresidential building and government projects.
Home building was up 1.1 percent in January with single family construction rising 2.3 percent and apartment building up 1 percent.
However, there was widespread weakness outside of housing. Nonresidential construction fell 0.2 percent and office building was flat, with bad weather likely a factor in the weakness.
Total government construction was down 0.8 percent in January compared with December.
Construction spending totaled $943.1 billion in January at a seasonally adjusted annual rate.
The 1.1 percent rise in housing construction compared with a 2.5 percent gain in December.
Economists had expected the January weakness, believing that construction, like other parts of the economy, would be slowed by the unusually cold weather and winter storms. However, the expectation is that builders will see better gains once spring weather arrives.
Most economists are looking for sales of new and existing homes to show further gains in 2014, bolstered by an improving economy and steady job growth.
U.S. manufacturing expanded more quickly last month as companies received more orders and added to their stockpiles. The increase only partly reversed a drop in January from December.
Still, the reading was 53.2, up from 51.3 in January, and any reading above 50 signals growth. And economists were encouraged by the increase in both new and backlogged orders.
“Manufacturing remains a bright spot for the economy,” said Russell Price, a senior economist at Ameriprise Financial Inc. in Detroit.“There’s still a sizable amount of pent-up demand in the consumer and corporate sectors.”
Growth in February was also broad-based: Fourteen of the 18 industries that are tracked by the survey reported growth. That was up from 11 industries in January. The industries reporting expansion included machinery, plastics, transportation equipment and paper products.
“We expect a substantial rebound … when weather patterns eventually normalize,” said Joseph LaVorgna, an economist at Deutsche Bank.
A gauge of employment was unchanged at 52.3, suggesting that factories added only a modest number of jobs last month.
Bradley Holcomb, chairman of the Institute for Supply Management’s survey committee, said many businesses blamed bad weather for a slowdown in their output.
“Other comments reflect optimism in terms of demand and growth in the near term,” Holcomb said.
The production index fell to its lowest level since May 2009. And the slowdown in output caused manufacturers’ stockpiles of raw materials and parts to surge by the most in 25 years.
The weather also disrupted the shipping of raw materials, leaving manufacturers with only some of the supplies they needed to produce goods, Holcomb said. That slowed production left more parts sitting in warehouses, thereby swelling inventories.
The report coincided with data showing that China’s manufacturing weakened in February and that employers cut staff at the fastest rate in nearly five years. It was further evidence that growth in the world’s second-largest economy is cooling.
“Weak China … is now a real problem,” Pantheon’s Shepherdson said in a note to clients.
Information for this article was contributed by Martin Crutsinger and Christopher S. Rugaber of The Associated Press, and by Lorraine Woellert and Shobhana Chandra of Bloomberg News.
Business, Pages 19 on 03/04/2014