August 14, 2020

Trade Deficit Rises

The Commerce Department said on Tuesday the trade gap increased 8.5 percent to $40.3 billion. March’s shortfall on the trade balance was revised to $37.1 billion from the previously reported $38.8 billion.

Economists polled by Reuters had expected the trade deficit to rise to $41.0 billion in April.

When adjusted for inflation, the trade gap increased to $47.6 billion from $44.6 billion in March.

Economists said the widening in the so-called real trade deficit indicated that trade continued to weigh on growth early in the second quarter.

“Real trade activity was also softer, suggesting that net trade is continuing to be a drag on domestic economic activity,” said Millan Mulraine, a senior economist at TD Securities in New York.

Trade subtracted a fifth of a percentage point from first-quarter gross domestic product.

U.S. Treasuries held steady at lower levels after the trade data. Stock index futures were little changed.

The economy has hit a speed bump, with higher taxes and government spending cuts crimping consumer spending and weighing on manufacturing activity. Growth estimates for this quarter currently range between a 1.2 percent and 2 percent annual pace.

The economy grew at a 2.4 percent rate in the first three months of the year.

The three-month moving average of the trade deficit, which irons out month-to-month volatility, slipped to $40.42 billion in the three months to April from $41.22 billion in the prior period.

Annual revisions showed the trade deficit in 2012 was smaller than previously reported, with exports revised higher.

In April, imports of goods and services increased 2.4 percent to $227.7 billion. The rebound in imports was mitigated by the lowest value of petroleum imports since November 2010.

Exports of goods and services increased 1.2 percent to $187.4 billion, the second highest on record. The gains came as the value of motor vehicles and parts exports rose to the highest on record.

Exports of consumer goods were also a record high.

Strong export growth helped to lift the economy out of the 2007-09 recession, but momentum has waned in recent months against the backdrop of slowing global demand, especially in China and recession-hit Europe.

The impact from U.S. dollar strength earlier in the year is also taking steam out of export growth.

U.S. exports to the 27-nation European Union fell 7.9 percent in April. Exports to the EU in the first four months of 2013 were down 7.4 percent compared to the same period in 2012.

Exports to the United Kingdom were the lowest since May 2009. Exports to China, which have been growing more slowly than in recent years, declined 4.7 percent in April.

China has been one of the fastest growing markets for U.S. goods, and exports to that country were up 4.8 percent for the first four months of 2013.

Imports from China surged 21.2 percent, lifting the contentious U.S. trade deficit with China to $24.1 billion from $17.9 billion in March.

(Editing by Andrea Ricci)

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March Retail Sales Fell as Consumers Cut Back

Retail sales declined a seasonally adjusted 0.4 percent last month, compared with February, the Commerce Department said on Friday. That followed a 1 percent gain in February and a 0.1 percent decline in January. The figures for February and January were both revised lower from initial reports.

Consumers cut back spending across a wide range of categories last month. Sales at auto dealers dropped 0.6 percent. Gas station sales dropped 2.2 percent, partly reflecting lower prices for fuel. The retail figures are not adjusted for price changes.

Excluding the volatile categories of autos, gasoline and building materials, core sales dropped 0.2 percent in March. That followed a gain of 0.3 percent in February. Department stores, electronics retailers and sporting goods outlets all reported lower sales.

The retail sales report is the government’s first look at consumer spending, which drives about 70 percent of economic activity.

The decline in March shows that higher Social Security taxes are starting to affect consumers and could blunt growth in the spring.

Many economists still predict that economic growth accelerated to an annual rate of roughly 3 percent in the quarter from January to March. That would be a significant increase from the anemic growth rate of 0.4 percent reported for the quarter from October to December.

Still, economists say the improvement is most likely temporary. Many now expect weaker spending will be among factors that slow growth again in the quarter from April to June quarter, with an annual growth rate of around 1.5 percent.

“The U.S. consumer looks a little less resilient,” said Michael Feroli, an economist at JPMorgan Chase. “It now appears that close to $200 billion in higher taxes may have actually had some impact on consumer spending.”

A separate report Friday on consumer confidence for April seemed to underscore that point.

The University of Michigan’s preliminary survey of consumer sentiment fell to 72.3. That’s down from 78.6 in March and the lowest since July. The discouraging jobs report and other weak economic reports are probably responsible for influencing consumers’ sentiment.

Companies are also less optimistic about the next few months, according to a separate Commerce Department report issued Friday. Businesses increased their stockpiles only 0.1 percent in February, the smallest gain in eight months. That suggests that companies had expected sales to weaken this spring, a point confirmed by the March retail sales figures.

Economists said restocking would probably remain tepid in the quarter from April to June. Slower restocking means companies order fewer goods, which slows factory output and growth.

“The economy appears to have lost some momentum,” said Paul Dales, an economist at Capital Economics. “But with gasoline prices now falling, we don’t expect too sharp a slowdown.”

The cost of a gallon of gas averaged $3.56 nationwide Thursday, down from $3.70 a month earlier, according to AAA.

The increase in Social Security taxes has lowered take-home pay this year for nearly all workers. Someone earning $50,000 will have about $1,000 less to spend in 2013. A household with two high-paid workers will have up to $4,500 less.

There were a few positive signs in the retail spending report. Furniture stores reported a 0.9 percent sales increase, suggesting that the housing recovery was still encouraging more spending. And sales at hardware and garden supply stores ticked up 0.1 percent, despite an unseasonably cold March.

But sales at general merchandise stores, which include major department stores like Macy’s and big discount stores like Walmart and Target, dropped 1.2 percent.

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Housing Starts Rose in February

WASHINGTON — American builders started more houses and apartments in February than a month earlier, the Commerce Department reported on Tuesday, pointing to a housing recovery that was gaining strength.

The government said builders broke ground on homes at a seasonally adjusted annual rate of 917,000, an increase from 910,000 starts in January. February’s performance was the second-fastest pace since June 2008, behind December’s pace of 982,000.

Single-family home construction increased to an annual rate of 618,000, the strongest level in four and a half years. Apartment construction also ticked up, to 285,000.

The gains are likely to grow even faster in the coming months. Building permits, a sign of future construction, increased 4.6 percent, to 946,000, last month. That was also the most since June 2008, just a few months into the Great Recession.

The American housing market is recovering after stagnating for roughly five years. Steady job gains and near-record-low mortgage rates have encouraged more people to buy.

Still, the supply of available homes for sale remains low. That has helped push up home prices, which rose nearly 10 percent in January compared with the period a year earlier, according to CoreLogic. The price gain was the biggest increase in nearly seven years.

The number of previously occupied homes for sale has fallen to its lowest level in 13 years. And the pace of foreclosures, while still rising in some states, has slowed sharply on a national basis. That means fewer low-priced foreclosed homes are being dumped on the market.

Those trends, and the likelihood of further price gains, have led builders to step up construction. Last year, builders broke ground on the most homes in four years.

Homebuilders have become much more confident in the last year. But in March, a measure of homebuilder confidence fell for the second consecutive month over concerns that demand for new homes was exceeding supplies of land, building materials and workers. In the short term, that could slow sales.

But the survey noted that the outlook for sales over the next six months rose to its highest level in more than six years.

Though new homes represent only a fraction of the housing market, they have an outsize effect on the economy. Each home built creates an average of three jobs for a year and generates about $90,000 in tax revenue, according to statistics from the homebuilders.

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Economix Blog: Not Enough Inflation

Yes, we have low inflation: The Commerce Department reported Friday that prices rose just 1.2 percent over the 12 months ending in January.

Such slow inflation is not, in and of itself, an argument for the Federal Reserve to expand its economic stimulus campaign. That depends on whether one expects inflation over the next year or two to rise closer to the 2 percent annual pace the Fed considers most healthy. As it happens, most Fed officials do.

But the January number does underscore that the Fed failed to do its job over the last two years. It underestimated the stimulus that the economy required then to prevent inflation from sagging below 2 percent now.

Indeed, annual price inflation has been less than 2 percent in four of the last five years, according to the Fed’s preferred measure, the personal consumption expenditures index published by the Bureau of Economic Analysis. The chart below shows 12-month inflation measure for personal consumption expenditures (known as P.C.E. inflation) month by month since 2000.

Inflation rate based on personal consumption expenditures.Source: Bureau of Economic Analysis Inflation rate based on personal consumption expenditures.

As Janet Yellen, the Fed’s vice chairwoman, said last April, “In effect there has been a significant shortfall in the overall amount of monetary policy stimulus since early 2009,” because the central bank can’t push short-term interest rates below zero, and its other measures, like asset purchases, haven’t filled the gap.

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After a Sturdy Start, Markets Fall Back

Stocks ended flat on Thursday, giving up modest gains late in the session and denying the Dow a chance to inch closer to a record high.

The Standard Poor’s 500-stock index still managed to close out February with a fourth consecutive month of gains. J. C. Penney was the day’s biggest loser, falling 17 percent to $17.57 after reporting a steep drop in sales.

The nation’s economy grew slightly in the fourth quarter, a turnaround from an earlier estimate showing contraction, according to the Commerce Department. A decline in new claims for unemployment benefits last week added to a batch of data suggesting that the economy continued its sluggish improvement.

The Dow was within striking distance of its record high after a gain of more than 7 percent this year. The Dow’s record closing high, set on Oct. 9, 2007, stands at 14,164.53, while the Dow’s intraday record high, set on Oct. 11, 2007, stands at 14,198.10.

The 20-stock Dow Jones Transportation Average, seen as a bet on future growth, is up 12.9 percent this year. It hit a record intraday high on Thursday.

“To push through to new highs, you would have to see consistent positive economic data in the U.S. and have Europe stabilize — those are two pretty big requirements,” said Jeff Morris, head of United States equities at Standard Life Investments in Boston.

“It wouldn’t surprise me to see us bounce around as we have the past couple of weeks,” he added.

After a strong January with gains of more than 5 percent, both the Dow and the S. P. tempered increases in February. Minutes from the Federal Reserve’s January meeting caused concerns that the central bank would pull back on its stimulus measures sooner than expected, while looming United States budget cuts and turbulent Italian elections tamped investors’ aggressiveness.

The Dow Jones industrial average shed 20.88 points, or 0.15 percent, to 14,054.49 at the close. The S. P. lost 1.31 points, or 0.09 percent, to 1,514.68. The Nasdaq fell 2.07 points, or 0.07 percent, to end at 3,160.19.

For the month, the Dow rose 1.4 percent, the S. P. 500 gained 1.1 percent and the Nasdaq advanced 0.6 percent.

Limited Brands and Netflix were among the best-performing consumer stocks. Shares of Limited Brands, the parent of the retailers Victoria’s Secret and Bath Body Works, gained 2.3 percent to $45.52. The stock of the video-streaming service Netflix climbed 2 percent to $188.08.

In contrast, shares of Groupon fell on weak revenue, with the daily deals company tumbling 24.3 percent to $4.53.

Cablevision slumped 9.6 percent to $13.99 after the cable provider reported more than $100 million in costs related to Hurricane Sandy and posted deeper video customer losses than expected.

On a positive note, the generic drugmaker Mylan gained 3.6 percent to $29.61 after it posted a 25 percent rise in fourth-quarter profit and said it would buy a unit of India’s Strides Arcolab for $1.6 billion. The benchmark 10-year Treasury note rose 6/32, to 101 3/32, and its yield fell to 1.88 percent, from 1.90 percent late on Wednesday.

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Reports Show Consumer Confidence and Home Sales Are Growing

Home prices are also rising steadily, and banks are lending more. Such improvements suggest that the economy is resilient enough to withstand about $85 billion in government cuts that are expected to take effect on Friday.

“The stars are lining up for stronger private sector growth this year,” said Craig Alexander, chief economist at TD Bank.

Sales of new homes jumped nearly 16 percent in January to their highest level in 4.5 years, adding momentum to the housing recovery. Consumer confidence rose in February after three months of declines. And home prices increased in December from the comparable month in 2011 by the largest amount in more than six years.

Over all, tax increases and spending cuts could shave up to 1.2 percentage points from growth this year, economists estimate. Mr. Alexander estimates that without the spending cuts or tax increases, the economy would expand more than 3 percent this year. Instead, he predicts growth of 2 percent.

But growth should accelerate later this year as the effects of the government cutbacks ease, he and other economists say. And several reports on Tuesday suggest that the economy’s underlying health is improving despite the prospect of lower government spending and further budget stalemates.

The Standard Poor’s/Case-Shiller 20-city home price index rose 6.8 percent in December from a year earlier. That was the biggest year-over-year increase since July 2006. Rising home prices tend to make homeowners feel wealthier and encourage more spending. They also cause more people to buy before prices rise further. And banks are more likely to provide mortgages if they foresee higher home prices.

Sales of new homes rose to a seasonally adjusted annual rate of 437,000, the Commerce Department said. Higher sales are keeping the supply of new homes low, even as builders have tried to keep up.

Consumer confidence rose after three months of declines, according to the Conference Board, a business research group. Confidence had plunged in January after higher taxes cut most Americans’ take-home pay. The rebound, though, suggests that some consumers have begun to adjust to smaller paychecks. The consumer confidence index rose to 69.6 in February from 58.4 in January, higher than last year’s average of 67.1.

Bank lending rose 1.7 percent in the October-December quarter, the Federal Deposit Insurance Corporation said. It was the sixth rise in seven quarters. Banks made more commercial and industrial loans to businesses and auto loans to consumers.

The F.D.I.C. also reported that profits at American banks jumped almost 37 percent for the October-December period, reaching the highest level for a fourth quarter in six years as lending increased.

Banks earned $34.7 billion in the last three months of 2012, up from $25.4 billion a year ago and the highest for a fourth quarter since 2006. Sixty percent of banks reported improved earnings from the fourth quarter of 2011, the agency said.

For all of 2012, the F.D.I.C. said bank earnings rose 19 percent to $141.3 billion, the second-highest annual level ever.

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Budget Cuts May Stall Economic Growth

The cuts — a result of a policy known as sequestration — most likely would reduce growth by about one-half of a percentage point in 2013, according to a range of government and private forecasters.

That could be enough to again slow the arrival of a recovery, producing instead another year of sluggish growth and high unemployment.

Such economic forecasts are even cloudier than normal because of uncertainty about the cumulative impact of the rounds of federal spending cuts and tax increases in the last few years. Whether the government’s repeated flirtation with fiscal turmoil is causing businesses to postpone or reduce planned investment is also unclear.

Some evidence suggests that companies, particularly in the military industry, cut investment last year in anticipation of sequestration, which was originally scheduled to begin Jan. 1.

The Commerce Department estimated that the economy shrank slightly in the fourth quarter.

Consumer spending remained relatively strong last year, but may have weakened early this year after an increase in payroll taxes, part of a deal to avoid the worst of the fiscal cliff tax increases and to delay its spending cuts.

“Where are all the customers? And where’s their money?” a Wal-Mart executive wrote in a February e-mail obtained by Bloomberg News, bemoaning a sharp decline in sales. Wal-Mart sales accounted for more than 2 percent of domestic economic activity in recent years.

Many economists are particularly critical of the arbitrary nature of the cuts, arguing that Congress could reduce annual deficits by the same amount with far less economic damage by spreading the cuts across a broader range of programs, directing them at lesser priorities or giving government agencies more discretion in how they make them.

“There’s a better way to do this,” said Joel Prakken, chairman of Macroeconomic Advisers, a forecasting company based in St. Louis. Still, he and others emphasized that the impact would most likely not be nearly as bad as the cost of the tax increases and spending cuts that had been scheduled to take effect Jan. 1.

“Even though it’s bad policy, the macro effects are small compared with going over the fiscal cliff,” he said. “That was a recession. This is a deceleration.”

The cumulative effect of the sequester and the tax deal struck in January might slash economic growth by as much as 1.25 percentage points — from a growth rate that otherwise might have been more than 3 percent — in 2013, economists estimate. Mr. Prakken predicts that the economy still would grow at about the same 2 percent annual pace it has managed in the years since the recession.

Sequestration would slash agencies’ “budget authority” by about $85 billion, but the Congressional Budget Office this month estimated that actual outlays would fall by only about $44 billion in the 2013 fiscal year, with the rest accruing over time. That is still about 1 percent of total federal spending to be squeezed out in a matter of months.

Many economists argue that the same cuts could be made with less pain by postponing some of them until later in the decade, when the economy is likely to be stronger. Many argue that growing spending on health care programs like Medicaid and Medicare is the real threat to the federal budget, not domestic spending on areas like education and support for poor families.

They also argue that macroeconomic estimates of the impact on growth probably understate the damage that will be caused by cutting spending indiscriminately.

“It’s the nature of the cuts that is most pernicious — across-the-board, without thought, cutting everything and anything including programs everyone thinks are good and effective,” said Mark Zandi, chief economist at Moody’s Analytics. “It’s impossible to calculate in terms of dollars and cents what you’re doing when you have these mindless cuts.”

The cuts would begin to take effect by March 1, and Congressional leaders appear increasingly resigned to let the deadline pass without action.

A broader deal is possible before a second deadline at the end of the month, when a budget deal is necessary to avoid a government shutdown. Any such deal could significantly reduce the economic impact of sequestration, which forecasters project will mostly fall in the second and third quarters.

In normal times the Federal Reserve could offset the impact of spending cuts by reducing interest rates. But these are not normal times. The Fed already is engaged in a vast effort to stimulate the economy, using monetary policy to suppress interest rates. The Fed’s chairman, Ben S. Bernanke, has warned repeatedly that such policy has limited power to offset additional cuts.

Some politicians are warning that agencies will need to take steps like furloughing air traffic controllers or shrinking early childhood programs.

“We are doing everything possible to limit the worst effects on D.O.D. personnel, but I regret that our flexibility within the law is extremely limited,” said Leon E. Panetta, the defense secretary, in a letter to his staff on Wednesday. “We have no legal authority to exempt civilian personnel funding from reductions. As a result, should sequestration occur and continue for a substantial period, D.O.D. will be forced to place the vast majority of its civilian work force on administrative furlough.”

While the cuts would take a modest toll on the overall economy, the pain would be concentrated in some areas, like the Washington suburbs that are home to many federal workers and government contractors.

“Sequestration would feel like a cold to most of the nation, but to Prince George’s County and the rest of the Washington metropolitan area, it would feel like a bad case of pneumonia,” Rushern L. Baker III, the executive of Prince George’s County in Maryland, said on Tuesday in a statement issued with the leaders of neighboring counties.

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U.S. Retail Sales Show Slight Rise in January

The Commerce Department said on Wednesday that retail sales edged up 0.1 percent after a 0.5 percent rise in December.

The small increase suggested that the expiration of a 2 percentage point payroll tax cut on Jan. 1 and higher tax rates for wealthier Americans were weighing on the economy.

Still, economists said consumer spending was unlikely to buckle given rising home values, moderate job growth and rallying stock market prices.

“We are starting to see the impact of higher taxes, but we have a positive wealth effect from increasing house prices and a boost from equities,” said Robert Dye, chief economist at Comerica Bank. “My expectation is that consumers are able to continue to increase spending but only moderately.”

Core sales, which strip out automobiles, gasoline and building materials and correspond most closely with the consumer spending component of gross domestic product, ticked up 0.1 percent.

Consumer spending, which accounts for about 70 percent of the American economy, grew at a 2.2 percent annual rate in the fourth quarter. That helped to soften the blow to the economy from slower inventory accumulation and sharp cuts in military spending.

The government said last month that economic output slipped at a 0.1 percent rate in the final three months of 2012.

However, the retail sales report showed core sales were a bit stronger in November and December than previously reported. In addition, businesses — excluding auto dealerships — accumulated slightly more inventory in December than earlier thought.

Taken together with a smaller trade deficit in December, the data suggested the government would raise its estimate for fourth-quarter gross domestic product when it publishes a revision later this month. Even so, the economy most likely grew at under a 1 percent rate in the fourth quarter, economists said.

Growth in consumer spending is expected to retreat from the pace of the fourth quarter as households adjust to smaller paychecks and higher gasoline prices. Prices at the pump have increased 30 cents so far this year.

Estimates for consumer spending growth in the first quarter currently range from 0.7 percent to 1.8 percent.

Some economists were encouraged that consumers had maintained purchases, though at a slow pace, despite a reduction in their disposable incomes.

“By no means are we completely out of the woods when it comes to the impact of higher taxes,” said Michael Feroli, an economist at JPMorgan Chase. “Evidence from past episodes suggests it could take up to two quarters for spending to fully adjust to new tax realities.”

A softer pace of consumer spending is expected to limit G.D.P. growth to a 1.8 percent rate this quarter, according to a Reuters poll of economists. For the year as a whole, economists expect growth of just 2.3 percent.

A separate report from the Labor Department showed that higher oil prices helped push up the cost of imported goods by 0.6 percent last month. Import prices had fallen by 0.5 percent in December.

Still, nonpetroleum import prices edged up just 0.1 percent in January and have risen just 0.2 percent over the last year, showing a lack of broad inflation pressure.

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Trade Deficit Narrows, Countering a Report of a Contraction

The country’s trade deficit narrowed to $38.5 billion in December, its lowest reading in nearly three years, Commerce Department data showed. The decrease was driven by a drop in oil imports and a surge in exports. The overall trade gap was far smaller than analysts polled by Reuters had expected.

“Trade data for December paint a reassuring and encouraging picture of the U.S. economy at the end of last year,” said Chris Williamson, chief economist at Markit.

A separate report from the Commerce Department showed that wholesale inventories unexpectedly declined in December, a factor that could hamper the stronger trade figures’ effect on growth.

Still, the two reports together suggested the government could revise up its reading on fourth-quarter G.D.P., which showed the economy contracting at a 0.1 percent annual rate. That decline was driven by an expected drop in exports, smaller gains in inventories and a plunge in military spending.

Barclays said that even with December’s decline in wholesale inventories, the economy most likely expanded 0.3 percent in the fourth quarter, thanks to the higher export numbers in Friday’s trade report.

American exports increased by $8.6 billion in December over the year-ago month, lifted by sales of industrial supplies, including a $1.2 billion rise from November in nonmonetary gold.

Reflecting the country’s current boom in oil and natural gas, petroleum exports rose by nearly $1 billion during the month to a record high.

A fall in petroleum purchases led overall imports to decline by $4.6 billion in December from the year-ago period.

For the entire year, the country’s imports of crude oil fell to their lowest levels since 1997 in terms of volume.

Stocks prices on American exchanges rose as investors took note of the strong trade data, which included the United States figures as well as readings showing stronger exports and imports in China during January. The price of the benchmark 10-year Treasury note also rose.

For all of 2012, the United States trade gap shrank by 3.5 percent, to $540.4 billion. Running trade deficits means the country loses dollars, which drags on the economy; rising exports reduce that effect.

Exports last year rose 4.4 percent.

Even the American trade balance with China had a silver lining. While imports from China increased to a record high last year, so did American exports there. The December trade deficit in goods with China, not seasonally adjusted, narrowed by $4.5 billion from the previous month on a drop in imports.

Also in December, United States wholesale inventories unexpectedly fell as auto dealers and agricultural suppliers drew down their stocks.

The Commerce Department said stocks of unsold goods at wholesalers dropped 0.1 percent during the month and grew less than initially estimated in November.

Economists polled by Reuters had expected wholesale inventories to rise 0.4 percent.

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Manufacturing Activity Rises for Second Consecutive Month

The Institute for Supply Management, a trade group of supply management professionals, said Friday that its index of manufacturing activity jumped to 53.1 in January from 50.2 in December. It was the highest reading since April, when the index hit 54.1.

Any reading above 50 indicates expansion.

In another positive economic report, the Commerce Department said spending on construction projects rose in December, ending a year in which construction activity increased for the first time in six years.

The second straight monthly increase in the manufacturing index showed that activity was starting to grow again after struggling through most of 2012. Uncertainty about tax increases and deep government spending cuts led many companies to reduce orders for machinery and equipment earlier this year. And a weaker global economy dampened demand for American exports.

The report was also encouraging because it showed that demand for factory goods increased while consumers started to pay higher Social Security taxes. That left them with less take-home pay, which could hurt consumer spending.

The survey came hours after the Labor Department reported that employers added 157,000 jobs in January. Manufacturers added 4,000 jobs last month, the fourth straight monthly increase.

“There’s a fair bit of optimism here to start the year,” said Dan Greenhaus, chief global strategist at BTIG LLC, a trading firm based in New York.

Mr. Greenhaus said the solid manufacturing gains, especially in new orders and employment, suggested that “the larger story remains intact, of a moderate, ongoing recovery.”

The I.S.M. report showed that 13 of the 18 industries surveyed had an increase in activity last month. They included manufacturers of plastics and rubber, textiles, furniture, printing, and apparel. Four industries reported contraction: minerals, computers and electronics, wood and chemicals.

The survey’s new orders index returned to growth, rising to 53.3 in January from 49.7 in December. Companies reported adding to their inventories in January after two months of declines, a sign that factories are preparing to increase production.

Slower growth in stockpiles was a major reason the economy shrank at an annual rate of 0.1 percent in the quarter from October to December, the first contraction in three and a half years.

Construction spending rose to a seasonally adjusted annual rate of $885 billion in December, up 0.9 percent from November when spending increased a revised 0.1 percent. For all of 2012, construction spending totaled $850.2 billion, a gain of 9.2 percent from 2011, when construction spending had fallen 3.3 percent. Even with the increase, construction activity is 27.2 percent below its high of $1.17 trillion in 2006 at the peak of the housing boom.

Construction has been posting a slow recovery, led by housing gains. In December, housing and nonresidential construction posted gains but spending on government projects fell.

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