U.S. manufacturing activity appeared to stabilize a bit in January, but a recovery is unlikely in the near term as factories grapple with a strong dollar and lower oil prices force energy firms to further cut spending.
Other data on Monday showed consumer spending was flat in December as households reduced their purchases of automobiles and unseasonably mild weather hurt heating demand. However, a jump in savings to a three-year high suggested consumption could rebound in the months ahead.
The Institute for Supply Management said its index of national factory activity increased 0.2 percentage point to a reading of 48.2 last month, the fourth straight month of contraction.
A reading below 50 indicates a contraction in manufacturing. However, the index remains above the 43.1 threshold which is associated with a recession.
The buoyant dollar has combined with tepid global demand to undermine U.S. exports. At the same time, businesses are working to reduce a huge pile of unsold merchandise clogging warehouses, which has left little scope to place new orders with factories. Manufacturing accounts for 12 percent of the economy.
In a separate report, the Commerce Department said consumer spending was unchanged in December after an upwardly revised 0.5 percent increase in November. Spending on long-lasting manufactured goods such as autos dropped 0.9 percent. Purchases of nondurable goods also declined 0.9 percent.
Consumer spending, which accounts for more than two-thirds of U.S. economic activity, was previously reported to have increased 0.3 percent in November. Spending increased 3.4 percent in 2015 after advancing 4.2 percent in 2014.
That data was included in last Friday’s fourth-quarter gross domestic product report, which showed consumer spending growth slowed to a 2.2 percent annual rate from the third quarter’s brisk 3 percent pace.
Moderate consumer spending, weak export growth and the ongoing inventory bloat helped restrict economic growth to a 0.7 percent pace in the fourth quarter. More cutbacks in investment by energy firms struggling with lower oil prices also hurt GDP growth.