Output, spending show economy is still fragile

NEW YORK — Mixed reports Monday on manufacturing, construction and personal income and spending made clear that the economy is enjoying modest growth even though the recovery remains fragile.

Manufacturing output expanded in February for a seventh straight month. Factory output has provided one of the few areas of strength for the economy. Still, the growth in manufacturing activity slowed compared with January and fell short of economists' expectations.

In addition, construction spending fell for a third straight month in January. And though personal spending rose slightly more than expected, Americans' incomes scarcely budged. In part, that was because Social Security recipients didn't get their usual cost-of-living boost.

The weak income growth could depress spending in the months ahead and drag on the economy's rebound.

The Institute for Supply Management, a trade group of purchasing executives, said its manufacturing index read 56.5 last month. That was slower than the 58.4 reading in January. A reading above 50 indicates expansion.

The ISM said its employment measure grew for the fourth time in five months, accelerating to 56.1 in February from 53.3 in January. February's number is the highest since January 2005. Gauges of production and new orders fell, indicating slower growth ahead.

Economists cautioned that manufacturers have been ramping up production for businesses that had let their stockpiles shrink to save money. If consumer spending remains tepid, manufacturing activity — and its contribution to the economy — will decline.

"The bulk of the upturn in manufacturing output is probably behind us," said Dan Greenhaus of Miller Tabak.

Still, many manufacturers say they're seeing hopeful trends. Chip giant Intel is predicting a rebound in demand for PCs this year. And auto makers have been raising sales estimates and recalling some workers.

Even companies in the hard-hit small-business sector are starting to report higher sales. Small companies have struggled with tight credit and have benefited less from the government stimulus.

In early September, John Rosmarin, president of office supplies maker Saunders Manufacturing Co., said he hoped to restore full-time hours for employees within a couple of months. That's happening only now at the company's factory in Readfield, Maine.

"If you had called me maybe a month ago, I wouldn't have been this positive," Rosmarin said.But a slight uptick in sales led him to reinstate Friday as a work day for his employees for the past three weeks. They had been working a 32-hour workweek for the past 12 months.