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Economy enjoying modest growth, though recovery remains fragile.

Posted on July 29, 2011 in News

Mixed reports yesterday on manufacturing, construction and personal income and spending made clear that the economy is showing 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.

Construction spending fell for a third straight month in January.

And though personal spending rose slightly more than expected, Americans’ incomes scarcely budged. 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.

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.

Another area of economy that is struggling is construction spending, which fell again in January, the Commerce Department said.

A lag in commercial activity such as office buildings and hotels offset a housing rebound. The trouble builders are facing is likely to weigh on overall economic activity.

“The commercial market lags the residential market and the commercial market is now feeling the affects of the downturn in a number of areas,” said William A. “Bill” Paulette, president of KBS Inc., a general contracting company in Henrico County.

Although the industry is facing a difficult environment, particularly for shopping centers, hotels and office buildings, some parts of the market are holding their own, Paulette said.

They include health care, multi-family, adaptive reuse, senior living and higher education.

Paulette said commercial construction is likely to remain sluggish for the next few years but there will be niches of opportunity.

Overall construction spending dropped 0.6 percent. Housing construction rose 1.3 percent. But that gain could be temporary, given the weakness in sales of new and existing homes in January. Spending on nonresidential projects fell by 2.1 percent.

After the third monthly decline, construction spending in January stood at a seasonally adjusted annual rate of $884.12 billion, down 11.5 percent from a year ago.

Personal spending rose 0.5 percent in January. That was slightly better than expected.