CORRECTED – WRAPUP 4-US manufacturing grows in Jan; spending up a touch

(In 4th paragraph, corrects to show that a reading above 50
indicates growth, not contraction)

* ISM Jan manufacturing index rises to highest since 2004

* U.S. consumer spending up slightly in December

* Incomes up for sixth straight month

* Savings level highest in six months
(Rewords first paragraph, adds market reaction, Fed data)

NEW YORK, Feb 1 (BestGrowthStock) – U.S. manufacturing expanded in
January at its fastest pace since 2004, data showed on Monday,
but consumers increased spending only slightly in December,
worried by job prospects and the state of the economy.

The manufacturing sector has been expanding since August,
but economists say economic recovery will be modest, especially
with the jobless rate at 10 percent, just off a 26-year high.

The Institute for Supply management said its index of
national factory activity rose to 58.4 from 54.9 in December,
handily beating economists’ median forecast of a rise to 55.5.

A reading above 50 indicates growth in the sector. The
prices paid component was at its highest since August 2008.

U.S. stock indexes rose following release of the index
while government bond prices fell.

The index showed the U.S. economy was keeping pace with
others showing expanded factory activity. Chinese manufacturing
grew at a near record pace in January. For more see
[ID:nN01153088].

Economists said businesses replenishing inventories, which
fell sharply during the recession, drove the sector’s gains.

“It is telling me that the first half of 2010 is going to
be supported by the restocking,” said Stephen Gallagher, chief
U.S. economist at Societe Generale in New York.

“We have a 3 percent to 3.5 percent growth range for the
first half of 2010 and based on these numbers we might be
underestimating the growth.”

The U.S. economy grew at a 5.7 percent annual pace in the
fourth quarter, its fastest clip in six years, driven by a
sharp slowdown in the rate at which businesses reduced stocks
of unsold goods, the government said on Friday.

But while the ISM employment component hit its highest
level in nearly three years, some economists said the
month-on-month gain was fairly modest.

“All of the employment numbers are showing that the huge
losses in jobs are well behind us but we are not gaining in
jobs either,” said Jay Mueller, senior portfolio manager at
Wells Capital Management in Milwaukee.

Norbert Ore, chairman of the ISM’s Manufacturing Business
Survey Committee, said the employment index is “a good
indicator of sentiment rather than actual jobs.” He added: “I
do think manufacturers are willing to hire if they have the
need, but I think it’s premature to expect a lot of job
growth.”

Economists polled by Reuters expect data due Friday to show
the economy added 5,000 jobs last month after shedding 97,000
in December.

CAUTIOUS CONSUMERS

A separate Commerce Department report showed consumers were
cautious with their credit cards in December, when spending
rose 0.2 percent after increasing by an upwardly revised 0.7
percent in November.

It was the third straight monthly gain in spending, which
accounts for about two-thirds of the U.S. economy. But it was
less than economists had expected, and in all of 2009, consumer
spending fell 0.4 percent, the largest drop since 1938.

December’s slight spending increase came even as real
disposable income climbed 0.3 percent after rising 0.3 percent
in November. The rise in income boosted the savings rate to its
highest since June.

Commerce Department data also showed the personal
consumption expenditures price index, excluding food and
energy, rose 1.5 percent in December from a year earlier. The
index, which is a key inflation measure monitored by the U.S.
Federal Reserve, rose 1.4 percent in November.

“It suggests that the Fed still has some time to keep
interest rates low,” said Gary Thayer, chief macrostrategist at
Wells Fargo Advisors in St. Louis.

Low interest rates and the aggressive fiscal spending
undertaken to prevent a recession turning into a depression
have caused a massive rise in the U.S. budget deficit.

U.S. President Barack Obama on Monday projected the
shortfall would peak at a record of $1.56 trillion in 2010, or
10.6 percent of GDP, before easing. [ID:nN31157907]

The U.S. central bank left benchmark interest rates near
zero last week and repeated a pledge to keep them low for an
extended period

Banks stopped tightening lending standards on many types of
loans in the fourth quarter of 2009, the Fed said on Monday,
although loan demand from households and businesses fell.

Separate Commerce Department data showed construction
spending fell 1.2 percent in December to the lowest since 2003,
hurt by a sharp drop in private residential and state and local
government construction. [ID:nN29161976]

For graphics on US manufacturing and personal consumption,
pls see: http://link.reuters.com/zej96h and
http://link.reuters.com/sym96h

Stock Research
(Reporting by Steven C. Johnson in New York and Lucia Mutikani
in Washington; Additional reporting by Ellen Freilich, John
Parry and Emily Flitter in New York; Editing by James Dalgleish
and Dan Grebler)

CORRECTED – WRAPUP 4-US manufacturing grows in Jan; spending up a touch