Split in economy shows in data

Nelson D. Schwartz / New York Times News Service /

Published Mar 16, 2013 at 05:00AM

Despite a measure of caution on the part of consumers, new data Friday suggested that the economy had underlying strength. Factories reported a healthy gain in output in February, and inflation remained under control, even though gasoline prices have been rising sharply.

Led by the automobile sector, industrial production jumped 0.7 percent in February, the biggest gain in three months, the Federal Reserve said. Economists had been expecting a 0.4 percent rise.

By contrast, the Thomson Reuters/University of Michigan’s preliminary reading for consumer sentiment in March showed a marked drop; the index fell to 71.8, from 77.6 in February. That was its lowest level since December 2011.

The split in the data underscores the wider crosscurrents buffeting the economy.

On one hand, the stock market is near record levels, big companies are reporting strong profits and the labor market seems to be finally gaining some steam, with better data last week and this week on unemployment. In particular, the addition of 236,000 new jobs in February spurred hopes that the economy was finally producing enough jobs to lower the unemployment rate, which has been stuck at just lower than 8 percent since September.

In recent days, many economists have raised their estimates for growth in the first quarter in light of other signs, like the move by businesses to increase inventories that fell in the final quarter of 2012. The housing sector has also been strong — a trend that may get more confirmation next week, when new data on housing starts and home sales will be released.

Still, consumers are being hit by the restoration of full Social Security taxes, which went into effect in January, in addition to feeling the effects of federal spending cuts that began March 1. Many experts estimate that the federal budget cuts could cost the economy more than 700,000 jobs this year.