#New_York Manufacturing stumbles but seen regaining footing

Manufacturing stumbles but seen regaining footing

File photo of Chevrolet Cruze chassis moving along the assembly line at the General Motors Cruze assembly plant in Lordstown, Ohio July 22, 2011.

(Reuters) - Manufacturing got off to a weak start this year as motor vehicle production tumbled, but a rebound in factory activity in New York state this month suggested the decline would be temporary.

Consumers were a bit more upbeat early this month even as they paid more for gasoline and saw higher taxes reduce their paychecks, other data on Friday showed. Households drew comfort from steady job gains, which together with rising house and share prices should help to underpin consumer spending.

Manufacturing output fell 0.4 percent in January after rising 1.1 percent in December, the Federal Reserve said. That followed two months of solid gains and largely reflected a 3.2 percent drop in auto production.

"Given that most of the weakness was due to the give-back in motor vehicle production after the 11 percent surge in activity during the last two months of last year, we expect this retreat in industrial output to be temporary," said Millan Mulraine, senior economist at TD Securities in New York.

In a separate report, the New York Fed said its "Empire State" general business conditions index rose to 10.0 from -7.8 the month before. February's index showed the first growth in the sector since July and the best performance since May 2012.

The rebound was driven by new orders, where the index was at its highest since May 2011. Economists said the pick-up in activity likely reflected recovery from Superstorm Sandy, which struck the East Coast in late October.

"Growth in the current quarter could get a boost from rebuilding efforts in the region," said Joseph LaVorgna, chief U.S. economist at Deutsche Bank Securities in New York.

CONSUMER SENTIMENT PERKS UP

A third report showed the Thomson Reuters/University of Michigan's index of consumer sentiment rose to 76.3 in early February from 73.8 in January. Its gauge of current economic conditions rose to 88 from 85 the prior month, while a measure of consumer expectations rose to 68.7 from 66.6.

"Consumers are getting over the fact that their paychecks are a little smaller since the beginning of the year due to the sunset of the payroll tax holiday," said Thomas Simons, an economist at Jefferies & Co. in New York.

"This offers some encouragement that consumption will recover following a weak month in January."

The expiration of a 2 percent payroll tax cut and increases in tax rates for wealthy Americans on January 1 were blamed for a sharp slowdown in retail sales last month.

The pick-up in consumer sentiment is welcome given the cooling in factory activity. Manufacturing carried the economy's recovery from the 2007-09 recession.

Last month's weakness in manufacturing helped push overall industrial production down 0.1 percent. Output had increased 0.4 percent in December.

Production at the nation's mines fell 1.0 percent, but cold weather boosted utilities production by 3.5 percent -- a positive development for consumer spending this quarter.

With industrial output weak, the amount of capacity in use fell to 79.1 percent from 79.3 percent in December.

Industrial capacity utilization - a measure of how fully firms are using their resources - was 1.1 percentage points below its long-run average.

Officials at the Fed tend to look at utilization measures as a signal of how much "slack" remains in the economy, and how much room growth has to run before it becomes inflationary.