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WASHINGTON: U S manufacturing output bounced back in February, the latest signal of strength in an economy that is showing clear momentum despite the headwind of government austerity.
While other reports yesterday showed a surge in petrol prices caused a spike in consumer inflation last month and eroded consumer sentiment in early March, the impact on the economy was likely to be limited and temporary.
“It appears that real economic growth is on an upswing,” said John Ryding, chief economist at RDQ Economics in New York.
Factory production increased 0.8 percent last month after falling 0.3 percent in January, the Federal Reserve said. The gain was broad based and double what economists had expected.
The increase combined with a big rise in utilities’ output to lead overall industrial production up by 0.7 percent, a good sign for first-quarter economic growth after activity stalled at the end of 2012.
Data ranging from employment to retail sales have suggested a limited hit on the economy from the end of a 2 percent payroll tax cut and higher tax rates for wealthy Americans, which went into effect at the start of the year.
Economists, who had already raised their first-quarter growth forecasts substantially this week, were further encouraged by the rise in factory output.
“It had seemed like the economy was going to be leaning primarily on the consumer and housing. We have another leg to stand on with manufacturing kicking-in,” said Ryan Sweet, a senior economist at Moody’s Analytics in West Chester, Pennsylvania.
First-quarter GDP growth estimates currently range as high as a 3.0 percent annual rate. The economy grew at only a 0.1 percent pace in the fourth quarter.
Separately, the Labor Department said its Consumer Price Index increased 0.7 percent last month, the largest gain since June 2009, as the cost of petrol jumped 9.1 percent. The CPI had been flat for the two previous months.
Gasoline accounted for about three quarters of the spike in consumer inflation in February, and so-called core prices advanced just 0.2 percent, leaving the door open for the Federal Reserve to press ahead with its bond-buying stimulus.
Economists polled by Reuters had expected the CPI to advance 0.5 percent. In the 12 months through February, it was up two percent, the largest gain since October and an acceleration from January’s 1.6 percent.
Core prices, which strip out volatile food and energy costs, also increased two percent over the past 12 months. The gain was the largest since October. However, a separate inflation index the central bank follows more closely has been falling and hit a nearly two-year low in January.
“The way the data has been playing out it gives them a free hand to be extremely aggressive to bring down unemployment,” said Stephen Stanley, chief economist at Pierpont Securities in Stamford, Connecticut.
Officials at the central bank meet next week to assess the economy and are widely expected to keep purchasing $85bn in bonds per month to spur even stronger growth.
The dollar fell against a basket of currencies as the inflation data reinforced expectations of the Fed would continue to pump money into the economy. US Treasury debt prices rose, while stocks dropped on corporate news.