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DATA EASES FEARS OF SHARP ECONOMIC SLOWDOWN
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| By David Lawder
Fri Mar 30, 12:27 PM ET
WASHINGTON (Reuters) - A raft of stronger-than-expected
U.S. economic reports on Friday, including data on personal
income, inflation and manufacturing, buttressed the view that
the economy was on solid footing and interest rates were
unlikely to fall any time soon.
Personal income rose 0.6 percent in February, below the
unrevised 1.0 percent gain for January but double the 0.3
percent increase forecast by analysts in a Reuters poll.
February consumer spending also rose 0.6 percent, outpacing
forecasts for a 0.3 percent gain after an unrevised 0.5 percent
increase in January, according to
Commerce Department data.
"These are a strong set of numbers right across the board.
This suggests that the consumer is a little more on solid
ground than we previously realized and the prices data should
keep the Fed focused on inflation rather than growth risks,"
said David Sloan, economist at 4cast in New York.
Construction spending also defied forecasts for a decline
as gains in nonresidential building overcame drops in home and
federal construction, and a Chicago purchasing managers report
showed a huge pick-up in Midwest manufacturing, prompting bond
traders to bet against a near-term
Federal Reserve rate cut.
But adding mixed signals, a key consumer survey showed
March sentiment at its lowest in six months due to worries
about rising prices, while a separate business survey showed
March business conditions cooling in the New York region.
Treasury debt prices eased after the data but later turned
higher as investors focused on tensions in the Middle East and
trade issues. Stocks initially rose before turning negative on
those concerns.
The National Association of Purchasing Management-Chicago,
a barometer of Midwest manufacturing, jumped to 61.7 in March
from 47.9 in February, its highest level since early 2005. The
index showed new orders soared.
"I think the Chicago PMI is an almost shockingly strong
number. Some of that may reflect a rebound from weather-related
effects but certainly it is a big surprise," said Scott Brown,
chief economist at Raymond James & Associates in St.
Petersburg, Florida. "Taken in context with the other data that
we got, this is another negative for the bond market."
CONSUMER SENTIMENT FALLS
Consumer confidence data, however, showed Americans had
some concerns with the economy.
The Reuters/University of Michigan Surveys of Consumers'
final March sentiment index fell to its lowest in six months as
worries about rising prices and slowing income gains weighed.
The index slid to 88.4, its lowest since September, from 91.3
in February.
But analysts said most of Friday's data looked strong.
"Income and spending, both higher-than-expected," said
Jeoff Hall, chief North American economist at Thomson IFR in
Boston. "Wages and salaries are growing at a meaningful clip.
You had a bit of a drift in consumer sentiment, but
construction spending has risen unexpectedly. Suddenly we've
gone from this bias of pessimism to one where we don't see any
justification for the Fed to ease."
INFLATION CONCERNS
Core consumer prices, which exclude volatile energy and
food costs, rose 0.3 percent in February, outpacing forecasts
for a 0.2 percent rise, following a downwardly revised 0.2
percent gain in January.
The core prices were up 2.4 percent compared with a year
earlier after a downwardly revised 2.2 percent gain in January.
Some officials at the Federal Reserve have said they prefer the
12-month rise in core prices to remain between 1 percent and 2
percent.
Fed policy-makers held benchmark borrowing costs steady at
a meeting last week and said their predominant concern was that
inflation would fail to ease. However, in announcing their
decision, they dropped an explicit reference to the possibility
of a further "firming" of monetary policy, keeping their
options open to lower borrowing costs if the economy stumbles
badly.
The February savings rate was unchanged with January at a
negative 1.2 percent of disposable personal income. The savings
rate has been negative since April 2005.
U.S. construction spending in February rose 0.3 percent,
its biggest jump since a 1.0 percent gain in March 2006, even
as private residential spending staged its 11th straight
monthly drop, the Commerce Department said. The total spending
of $1.171 trillion was driven higher by nonresidential
building, made up of commercial construction and local
government building.
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