Factories Show February Strength

Photograph by Daniel Acker/Bloomberg

A tack welder in Dubuque, Iowa.

At first glance, manufacturing seemed to show signs of bipolarity in today’s economic releases.

The Federal Reserve in Washington reported that production in manufacturing dropped 0.4 percent in January. That followed big back-to-back gains of 1.7 percent in November and 1.1 percent in December. Normally such a number would raise concerns that manufacturing is slipping back into the doldrums.

But the February report from the Federal Reserve Bank of New York’s Empire State index tells a different story. It climbed to 10 this month, up from minus 7.8 in January, exceeding all forecasts in a Bloomberg survey and showing the biggest improvement since May.

The February numbers are making some analysts downright optimistic about manufacturing, which accounts for about 12 percent of the economy.

“Manufacturing should be a source of growth this year,” said Joseph LaVorgna, chief  U.S. economist at Deutsche Bank Securities Inc. in New York, whose forecast matched the highest for the New York index in the Bloomberg survey. “We are having to reevaluate the phenomenal resiliency of the U.S. economy and perhaps its ability to outstrip expectations.”

Prospects for an uptick in demand for U.S. factories are supported by other figures today, indicating that consumer sentiment has held up even as paychecks are trimmed by higher taxes. The Thomson Reuters/University of Michigan preliminary index of consumer sentiment climbed to 76.3 in February, a three-month high, from 73.8 the prior month.

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