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Factory activity fueling modest recovery

Hopes that America's factories will help drive the economic recovery gained support Monday from news that manufacturing activity grew in January to its strongest point since 2004.

Other reports released Monday offered a reminder that the recovery remains fragile. Construction spending sank in December to its lowest level in more than six years. And gains in personal income and spending were too modest in December to suggest that consumers can fuel a strong rebound.

"Right now we're getting a recovery," said Michael Gregory of BMO Capital Markets. "But you have to be skeptical. This kind of performance cannot be sustained unless we get those other areas that are still weak in the economy to contribute to growth - housing, construction, real consumer spending."

Manufacturing activity has become a pocket of strength, though some of it flows from temporary factors such as customers' replenishing stockpiles.

The Institute for Supply Management said its manufacturing index read 58.4 in January, compared with 54.9 in December. It was the sixth straight month of expansion. New orders, a sign of future growth, jumped in January to the highest level since 2004. So did current production. Order backlogs grew, along with prices companies paid. Thirteen of 18 industries said they were expanding, led by the apparel, textile mills and machinery sectors.

U.S. manufacturers have been pumping up production to feed customers' depleted stockpiles. As customers try to restock their shelves, manufacturers need to ramp up production. That could mean hiring more workers.

"Production growth is finally beginning to tax existing work forces to the point where companies need to expand employment, and, critically, have enough confidence to do so," said Pierre Ellis of Decision Economics.

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