U.S. Economy: Manufacturing Rebounds, Spending Grows (Joe Richter and Shobhana Chandra)

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U.S. manufacturing unexpectedly expanded and personal income, spending and prices rose more than forecast, making it harder for the Federal Reserve to cut interest rates any time soon.

By Joe Richter and Shobhana Chandra

March 1 (Bloomberg) -- U.S. manufacturing unexpectedly expanded and personal income, spending and prices rose more than forecast, making it harder for the Federal Reserve to cut interest rates any time soon.

The Institute for Supply Management's factory index jumped to 52.3 in February from 49.3 in the prior month. Government figures showed spending rose 0.5 percent in January, incomes climbed 1 percent and the Fed's preferred measure of inflation rose 0.3 percent from December.

The factory report lifted stocks from near their lowest level of the day and signaled that manufacturing, which restrained growth last year, may be stabilizing. Fed Chairman Ben S. Bernanke yesterday said policy makers expect a pickup in growth later this year.

``The Fed is saying the economy will grow at a little better pace, that it won't be as weak as it was in the fourth quarter, and the data today is very consistent with that,'' said Ethan Harris, chief U.S. economist at Lehman Brothers Holdings Inc. in New York. ``There's also some unfriendly inflation data, and the message there is that it's too early to declare victory on inflation.''

Incomes in January were boosted by bonus payments and gains from stock options exercised at the start of the year, the Commerce Department said. The increase, the biggest since January of last year, followed a 0.5 percent gain in December.