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February industrial data buoy investors

But economists show caution, not glee

Jacek Ardo works on a new house in Park Ridge, Ill. Spending on housing construction dropped in January, the Commerce Department said. Jacek Ardo works on a new house in Park Ridge, Ill. Spending on housing construction dropped in January, the Commerce Department said. (Tim Boyle/Bloomberg News)

WASHINGTON -- Better than expected performance in the US manufacturing sector in February helped calm investors yesterday, even as economists cautioned that one month's worth of data is not a cause for too much optimism.

Industrial activity, as measured by the Institute for Supply Management's manufacturing index, has alternated between growth and contraction every month since October.

Economists were lukewarm about February's reading of 52.3, though the index was well above the January reading of 49.3 and Wall Street's expectation of 50. A reading above 50 indicates growth for the sector.

Investors were comforted by the data. The Dow industrials erased an early 209-point drop after the data were released, and ended down only 34 points.

Global Insight economist Tom Runiewicz said the February data did not ease his concerns about the economy, particularly regarding the downturn in housing, which hurts makers of building materials and may slow other consumer spending.

Runiewicz and other economists said weakness in the housing and auto sectors, plus slowing capital spending by businesses, would weigh on manufacturers for the rest of the year and contribute to slower overall growth.

"I expect to see a return to sub-50 readings in the months ahead," said Michael Gregory, a senior economist at BMO Capital Markets. "Overall, the economy is going to do OK, but the factory sector has a few more hurdles to cross."

The report contributed to a mixed picture of the economy. Spending on housing construction dropped in January, the Commerce Department reported, while a separate report showed that personal spending rose in January at the fastest clip in a year.

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