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Growth in US stabilizing after late-2013 slowdown

Manufacturing and consumer confidence improved in February and housing stabilized last month, indicating the U.S. economy is shaking off the effects of the harsh winter and loss of momentum at the end of 2013.

The Institute for Supply Management-Chicago Inc.’s regional factory barometer unexpectedly increased to 59.8 this month from 59.6 in January, the group said Friday.

Other reports showed household sentiment edged up, pending sales of existing homes were little changed and the economy grew at a slower pace in the fourth quarter than previously estimated.

The data signal the world’s largest economy is starting to overcome the freeze that hurt retail sales, production and construction last month.

Federal Reserve policy makers will probably continue to keep interest rates low to nurture the expansion even as they take measured steps to reduce stimulus.

“The first quarter is starting out pretty weak, and a lot of that is weather,” said John Silvia, chief economist at Wells Fargo Securities LLC, in Charlotte, N.C., who correctly predicted the GDP revision. “2014 is going to be a much better year than 2013.”

The Standard & Poor’s 500 Index rose for a third day on the improving economic data. The S&P 500 climbed 0.3 percent to a record 1,859.45 at the close in New York.

Japan’s economy

Japan’s economy also showed signs of picking up along with inflation, according to two reports Friday.

Industrial production in January increased the most since 2011, while a measure of consumer prices matched the biggest advance in more than five years.

In the euro area, inflation exceeded economists’ forecasts in February, easing pressure on the European Central Bank to take action next week to foster the fragile economic recovery.

The median forecast of 53 economists in a Bloomberg survey projected the Chicago manufacturing index would fall to 56.4. Estimates ranged from 53 to 60. Readings greater than 50 signal growth.

The gain this month was led by a surge in hiring that sent the group’s employment index to the second-highest level in two years. Measures of orders and production continued to signal expansion, although at a slower pace.

Consumer confidence improved in February from a month earlier as more Americans grew optimistic about the outlook for the economy, another report Friday showed.

Improving sentiment

The Thomson Reuters/University of Michigan final sentiment index for the month rose to 81.6 from 81.2 in January.

The index averaged 89 in the five years before December 2007, when the last recession began, and 64.2 in the 18-month contraction that followed.

The sentiment survey’s index of expectations six months from now increased to a six-month high, while the gauge of current conditions, which measures Americans’ views of their personal finances, declined.

More buoyant sentiment means spending may pick up after bad winter weather across much of the country caused some Americans to stay close to home rather than shop last month.

Wage growth and more hiring would help further brighten spirits and give consumers the wherewithal to increase their purchases.

Retail sales fell 0.4 percent in January after a revised 0.1 percent drop in December that was previously reported as an increase, Commerce Department data showed earlier this month.

“We’re going to see wages start to pick up,” said Wells Fargo’s Silvia. “That’s why we think consumer spending will be better going forward as well.”

GDP revision

Gross domestic product grew at a 2.4 percent annualized rate from October through December, compared with the government’s first estimate of 3.2 percent issued last month, revised figures from the Commerce Department also showed Friday.

Smaller gains in consumer spending, inventories and exports weighed on an economy already slowed by the 16-day partial shutdown of federal agencies in October and weaker government spending.

Less fiscal restraint this year and further progress in the labor market probably will boost GDP after the unusually harsh weather curbed growth in early 2014.

Business investment was one of the few areas of the economy that looked better in the fourth quarter than previously estimated, the report showed.

Spending on new equipment climbed at the fastest pace since the third quarter of 2011. Purchases of intellectual property, including computer software, showed the biggest advance in six years.

‘Pivotal’ shift

“There has clearly been a shift in attitudes on the part of business people, kind of a pivotal point,” Kelly King, BB&T Corp. (NYSE: BBT) chief executive officer, said in an interview. “People have become more confident, less negative, more willing to think about investing.” The Winston-Salem, N.C.-based bank has assets of $182 billion.

“It is not a sea change, but there is a pivotal swing that I believe will cause GDP for this year to be building positively throughout the year,” King said. “I think it will be 2.5 percent or so for the year. It may end up 3 or 3.25 or so” by the fourth quarter. “A nice steady improvement.”

Residential real estate is also showing signs of steadying after the coldest January since 2011 set construction back.

Housing starts fell 16 percent last month, the biggest decrease in almost three years, figures from the Commerce Department showed earlier this month.

The index of pending home sales climbed 0.1 percent in January after a 5.8 percent drop the prior month that was smaller than previously estimated, figures from the National Association of Realtors showed Friday.

Two of four regions, the Northeast and the South, saw an increase from the previous month, Friday’s report showed.

Yellen’s view

Unusually cold weather has played a part in the soft economic data, though it’s not yet clear how much, Fed Chair Janet Yellen said Thursday in testimony to the Senate Banking Committee.

She repeated the Fed’s statements that the central bank intends to reduce asset purchases at a “measured” pace, and she said in response to a separate question that the bond- buying program is likely to end in the fall.

“What we need to do and will be doing in the weeks ahead is to try to get firmer handle on exactly how much of that set of soft data can be explained by weather and what portion, if any, is due to softer outlook,” Yellen said. “So if there’s a significant change in the outlook, certainly we would be open to reconsidering” slowing the pace of tapering, she said.

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