11:40 AM New York – U.S. stocks traded sideways after personal income in January declined 3.6% and spending rose 0.2%. The payroll tax rate cut expiry and higher tax for wealthy had limited impact on the spending. U.S. manufacturing expanded at a faster rate in February.
Stocks in New York pared losses after the first hour of trading and recovered from the loss of as much as 0.9% to hug the flat line.
The dollar gained against the euro and the pound after the latest economic data from the UK suggested more weakness. The pound fell below $1.50 and the euro fell below $1.30 after manufacturing in the euro zone contracted for the nineteenth month in a row.
Manufacturing shrank last month in the U.K. and the index declined to 47.9 compared to revised 50.5 in January according to the Chartered Institute of Purchasing and Supply in London.
President Barack Obama and Congressional lawmakers are making a last ditch effort to avoid the automatic spending cuts of $85 billion set to start at midnight Friday.
Chances of any compromise at the eleventh hour are slim as several lawmakers have returned to their home states.
Personal Income Tumbles 3.6%
U.S. consumer spending increased 0.2% in January from the downwardly revised 0.1% gain in December.
The Commerce Department said spending increased 0.1% after adjusting for inflation and matched the gain in the previous month.
Spending rate declined after payrolls tax cut of 2% declined at the end of 2012 and tax rate increase for wealthy Americans.
Personal income declined 3.6% in January, the largest monthly fall since January 1933, according to the data available on the Commerce Department website.
The income decline was trimmed by the surge in savings of 2.6% after corporations rushed last year to pay bonuses and dividends before tax increase on high earners kicked in 2013.
Consumers absorbed large drop in income in January by trimming savings rate rather than spending.
Separately, manufacturing expanded at a faster rate in February and reached the highest level since June 2011.
The U.S. factory index increased to 54.2 in February from 53.1 in January according to the data released by the Institute of Supply Management.
In addition, China reported its factory activities index declined to 50.1, second monthly decline in a row.
The growth rate fell as the domestic demand grew at a slower pace according to the data released by the National Bureau of Statistics and China Federation of Logistics and Purchasing today.
Stocks in Review
Atlantic Power (ATP
) plunged 30% after the North American power plant operator reported revenues below expectations and quarterly loss larger than estimated. The power generator also slashed dividend by 65%.
) increased 1.4% after electronics retailer reported smaller than expected loss in the quarter and the founder Richard Shulze ended buyout talks with the company with no bid.