Ominously, the two largest parts of the NAPM index, new orders and production, both showed unusually low readings. That's a signal that it could be quite some time before the factory sector begins to turn up again, even with aggressive interest rate cutting by the Fed. Federal payments to farmers and retirees helped drive income higher. Still, economists say the savings rates isn't as dire as it would seem because it doesn't capture gains from such things as higher real estate values or financial investments. Seeking to prevent the faltering economy from slipping into a recession, the Federal Reserve on Wednesday cut interest rates another half percentage point, following up its first cut on Jan. 3.
Economists predict more rate reductions ahead.
Consumer spending, which accounts for two-thirds of economic activity, has been an engine of growth. But consumers have been tightening their belts, contributing to the slowdown. While the weakening economy has really hurt some sectors, such as manufacturing, construction has remained stable, helped in part by lower interest rates that make borrowing cheaper. Spending on big government projects led the way.