— The University of Michigan measure of consumer sentiment rose to 77.6, the second straight monthly increase. The rebound in consumer confidence, seen in both the Michigan survey and another survey from Conference Board, suggests that some consumers have begun to adjust to smaller paychecks.
— Consumers increased spending 0.2 percent in January from December but cut back on major purchases such as autos and appliances. Income plunged 3.6 percent, though it followed a jump in December driven by dividends and bonuses paid early to avoid higher income taxes. The increase in Social Security taxes also lowered after-tax income.
— Spending on U.S. construction projects fell in January by the largest amount in 18 months, the Commerce Department said. Still, that the decline followed a nearly 10 percent increase in construction spending in 2012, the first annual gain after five years of declines.
Investors seemed to focus Friday on the gains in manufacturing. Stocks rebounded after the ISM survey was released. The Dow Jones industrial average closed up 35 points, overcoming an early loss of 116 points.
One reason for optimism is that the job market is looking better.
Employers have added an average of 200,000 jobs a month from November through January. That was up from about 150,000 in the previous three months. And a drop in weekly applications for unemployment benefits suggests that employers have stepped up hiring further in February.
Some employers are even willing to pay more: After stagnating since the recession ended, hourly pay has been rising faster than inflation for the past three months. If such pay increases continue, they will help blunt the impact of the higher Social Security taxes.