U.S. factory, private payrolls data point to firming economy

Wed Feb 1, 2017 2:43pm EST
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By Lucia Mutikani

WASHINGTON (Reuters) - U.S. factory activity accelerated to more than a two-year high in January amid sustained gains in new orders and raw material costs, pointing to a recovery in manufacturing as domestic demand strengthens and the drag from low oil prices ebbs.

Other data on Wednesday showed private employers boosted hiring last month. While construction spending slipped in December, the underlying trend remained strong. The signs of strength in the economy at the start of the year were acknowledged by the Federal Reserve's policy-setting committee.

At the end of its two-day meeting on Wednesday, the Fed said it expected that economic activity would expand at a "moderate pace," and the labor market strengthen "somewhat further."

The U.S. central bank, which has forecast three rate hikes this year, kept its benchmark overnight interest rate unchanged in a range of 0.50 percent to 0.75 percent. The Fed increased borrowing costs in December.

"The economy is off to the races with the wind at its back. The Fed will lift rates three times in 2017 for sure, and maybe they might need to add a rate hike or start the year earlier with a policy firming in March," said Chris Rupkey, chief economist at MUFG Union Bank in New York.

The Institute for Supply Management (ISM) said its index of national factory activity increased 1.5 percentage points to a reading of 56.0 last month, the highest since November 2014 when oil prices started collapsing.

A reading above 50 indicates an expansion in manufacturing, which accounts for about 12 percent of the U.S. economy. Some of the increase likely reflects a surge in business confidence following last November's election of Donald Trump as president.

Trump has pledged to cut taxes and reduce regulations. The business mogul-turned politician, who was sworn in as president on Jan. 20, has yet to offer more details about the anticipated fiscal stimulus package.   Continued...

Workers perform assembly on SUV chassis at the General Motors Assembly Plant in Arlington, Texas June 9, 2015. REUTERS/Mike Stone