March 2, 2006--Warm weather and rising incomes put consumers in a spending mood early this year, keeping small businesses, factories, and other manufacturers busy. Here’s a look at this week's economic developments and how they may impact your business.

Spending Up

Despite an up-tick in prices, consumers dipped into their savings and spent more than they earned in January, the Commerce Department reported Wednesday.

The spending spree -- a jump of 0.9% from December to $76.7 billion, and the biggest increase since July 2005 -- was fueled in part by a 0.7% rise in personal income to $75.2 billion, the report said. Even so, consumers tapped into their savings, ending January with a minus 0.7% savings rate. That continued a three-month trend in which the portion of income Americans save has dropped below zero.

At the same time, core consumer prices -- excluding energy and food -- rose by 0.2%, the department said, continuing a slow climb of 1.8% over the past 12 months, the department said.

Confidence Cold, Factories Hot

The return of colder weather in February has already put a chill on consumer confidence, the Conference Board reported Tuesday.

After showing signs of resilience in recent months, the board's expectations index, which gauges the outlook of consumers over the near-term future, sagged in February to 83.3 from 92.1 the previous month. The board's confidence index also dropped, while the present situation index held steady.

Consumers, though spending freely, said they anticipated fewer jobs and lower wages in months ahead, the board said.

Meanwhile, U.S. factories cranked up activity in February, the Institute for Supply Management reported Wednesday. The ISM manufacturing index rose to a three-month high of 56.7%, from 54.8% in January, while new orders climbed to 61.9% from 58%. Figures above 50 indicate growth.

U.S. factories also hired more workers last month, with the employment index rising by 3.7 points to 55%, the ISM reported.

Home Sales Down

Existing-home sales dropped to a two-year low in January, while the number of homes on the market continued rising, a National Association of Realtors report showed Tuesday.

Sales of single-family homes and condos fell to a 6.56 million unit annual rate, leaving 2.91 million units unsold by month's end, the NAR said.

A separate report by the Commerce Department showed sales of new homes declined by 5% in January to an annual pace of 1.23 million units -- a 12-month low. The number of unsold new homes on the market jumped 1.2% from December to 528,000.

The slowdown in both new- and existing-home sales has yet to affect prices, the reports showed. New home prices in January averaged $238,100, 6.7% higher than last year, the Commerce Department said. In the same month, existing home prices averaged $211,000, a 11.6% increase from last year, NAR figures showed.