Factory output ended on a high note in 2012 as the low inflation bolstered consumers’ purchasing power. These are positive signs that the economy could weather the higher tax bills that took effect at the start of the New Year.

Manufacturing output increased 0.8 percent in December according to the report released by the Federal Reserve. The report came out a day after retail sales data showed robust consumer spending in December.

The increase in demand indicates that the Federal Reserve’s monetary policy will still continue due to the lack of inflation. The Labor Department stated that consumer prices remained flat in December due to the decline in gasoline prices.

This is good news for consumers who are still suffering from the 2007 to 2009 recession. Weekly earnings increased 0.6 percent in December when adjusted for inflation according to the Labor Department.

The earnings data indicated family budgets were on a better footing at the start of the year even with the increase in payroll taxes and the wealthiest Americans hit with higher income taxes. The tax increases were aimed to reduce the federal budget deficit. They are expected to hold consumer spending back in the first half of 2013. Some economists expect the higher taxes to decrease a full percentage point from the economic growth in 2013.

US stock markets were not affected by the data even if the increase in factory output and real earnings were above the forecasts made by analysts surveyed by Reuters. Gains in manufacturing were broad-based and it tempered the view that some of the growth came from the temporary rebound after Superstorm Sandy that devastated the East Coast in late October and early November.

Output of motor vehicles and parts increased 2.6 percent. Production of machinery went up 0.6 percent. Factories turned out 1.5 percent more electronics and computers. Industrial production increased 0.3 percent.

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