Factory Output Up, but Price Pressures Grow

NEW YORK —  As the U.S. economy rolled into its longest expansion ever Tuesday, a new report showed the factory sector grew for the 12th straight month but price pressures soared, fueling fears that interest rates must rise.

Coming a day before the Federal Reserve was expected to announce a modest rate hike to cool the economy, the National Assn. of Purchasing Management said that its index showed manufacturing activity in January expanded to 56.3, slightly slower than its 56.8 reading in December.

But prices that manufacturers paid for their purchases--a closely watched gauge of inflation--surged to the highest reading in nearly five years. The price index rose to 72.6 in January, up from 68.3 the prior month.

“That is going to feed into the desire of the Fed to look into a series of rate hikes to tame inflation,” said Barry Hyman, market strategist for Ehrenkrantz, King Nussbaum Inc.

NAPM compiles its index by surveying 350 manufacturers. Any reading above 50 indicates an expanding sector.

Other data released Tuesday also underlined strong U.S. economic growth and expectations for further credit tightening.

The Commerce Department said that spending on new U.S. construction projects rose in December to an all-time high of $730.3 billion, a 2.0% gain fueled by record spending on new housing and public construction projects.

New-vehicle sales in January picked up where last year left off, with most auto makers reporting robust gains in U.S. sales despite East Coast snowstorms that kept some buyers from dealer showrooms.

General Motors Corp. posted an 11.8% gain in sales, topping estimates, with truck sales up 17.9% and cars up 6.5%. Ford Motor Co.’s sales grew 4.5%. A jump in car sales, including the imported Volvo and Jaguar lines, offset a decline in truck sales.

DaimlerChrysler said sales of American brands slumped 5.9%, but said it faced a tough comparison with record high sales last year.

Toyota Motor Co.’s sales surged 35.7%, and Honda Motor Co. posted a 3.3% gain. Sales climbed 26.7% at Nissan Motor Co.

Total January industry sales, with all but BMW and Porsche reporting, were up 10%, equaling a monthly selling rate of 17.6 million units.