US manufacturing picks up while consumption slows

Image caption, US manufacturers saw growing demand from export markets, offsetting weak US consumer spending

The US economy is showing signs of rebalancing away from consumer spending towards manufacturing, data suggests.

Expansion of the US manufacturing sector sped up unexpectedly in October, thanks to strong new orders and exports, and slow imports.

But growth in consumer spending slowed to a crawl in September, while personal income fell unexpectedly.

Meanwhile, construction spending rebounded, driven by government investment, but remains very weak.

Weak dollar

The lastest survey by the Institute for Supply Management (ISM) indicated that output had expanded for the 15th consecutive month.

The institute's manufacturing index rose to a higher-than-expected 56.9 in the month, up from 54.4 in September.

Index figures above 50 suggest expansion of the sector.

Analysts had expected the figure to be largely unchanged from the previous month.

The survey found that current production and new orders grew particularly strongly, despite weak consumer spending in the US.

The rising orders will allay fears that a surprise build-up of inventories during the third quarter revealed last week may lead to a slowdown in production in coming months.

The survey also found that exports jumped, while imports slowed, suggesting that firms are benefiting from the weaker dollar, and reorienting themselves away from domestic demand.

Unemployment benefits

Meanwhile, US personal income registered an unexpected fall in September, while consumer spending was also weak, data from the US Commerce Department showed.

Households saw their earnings fall at an annualised rate of 0.1% compared with August, the largest fall in personal income in 14 months.

Image caption, Americans cut back on their savings as consumer spending continued to grow despite falling incomes

In August, incomes rose by a revised 0.4%.

Analysts had expected earnings to rise by 0.3%.

The fall in personal income was mainly driven by lower benefit payments, following a temporary rise in benefits during August due to emergency unemployment insurance legislation passed by Congress.

Dipping into savings

Consumer spending still rose by an annualised 0.2%, indicating that Americans cut back on their savings - to 5.3% of their income, from 5.6% in August - in order to maintain their spending.

The US savings rate has hovered around 5.5%-6% since the depth of the recession at the beginning of 2009, having risen from a low of just over 1% in the middle of the boom in 2005.

But the increase in consumption was slower than the 0.5% recorded in the last two months, and also below the 0.4% expected by the markets.

The new figures will not greatly affect analysts' views on the overall performance of the US economy during September, as GDP figures for the third quarter of the year were released last week.

Market reaction was muted, with the dollar almost unchanged against the euro immediately following the data release.

However, analysts say the data does reveal a sharper slowdown than expected in consumer spending that could be a drag on growth during the remainder of the year.

Construction sluggish

Separate data from the Commerce Department showed that construction spending recovered faster than expected in September.

The annualised rise of 0.5% in September follows a fall of 0.2% the previous month to the lowest level since July 2000.

Strong spending on public projects, as well as spending on residential developments, helped offset a further fall in commercial real estate projects.

Despite the uptick, total construction spending still remains extremely depressed, at 34% below its peak level in 2006.

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