Tuesday, February 3, 2009

Consumers Keep Recovery at Bay

The Wall Street Journal - U.S. manufacturing activity got a bit of a reprieve in January, but steep declines in consumer spending suggest talk of a recovery in that sector is premature.

The Institute for Supply Management on Monday said manufacturing activity contracted in January, but at a slower rate than in December, based on a survey of suppliers in 18 manufacturing industries. Activity rose to 35.6 from December's 32.9, which was the weakest since ISM records began in 1948, as new orders and production showed particular improvement. But activity in the sector overall remained below 50 -- the level indicating growth -- for the 12th month in a row.

"I'm hesitant to be encouraged, but at least the rate of decline has slowed," survey chairman Norbert Ore said. He said the sector's dependence on the housing and auto industries suggests that until those show some improvement, troubles are likely to persist.

The sharp decline in consumer spending is a key reason why housing, autos and manufacturing continue to struggle. A Commerce Department report released Monday showed consumer spending fell 1% in December, the fifth-straight monthly decline.

The drop reflected lower prices on goods and services, as well as softer demand. Prices fell 0.5% from the prior month after a 1.1% drop in November, while the "core" index that excludes food and energy prices -- a gauge of inflation -- was unchanged.

Consumer spending is under pressure as personal income continues to slump and battered Americans shift into savings mode. Personal income sank 0.2% in December from the previous month, the third-consecutive decline. Meanwhile, the savings rate rose to 3.6% of after-tax income from 2.8% in November; economists say it could hit double digits by year's end, a sharp reversal from the low and even negative rates seen earlier this decade.http://online.wsj.com/article/SB123358108427239133.html

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