WASHINGTON (AP) ­- Personal incomes rose in January at the fastest clip in a year, bolstered by bonus payments to high-income executives, but construction activity fell sharply as the nation’s housing industry continued to suffer through tough times.

The Commerce Department reported Thursday that personal incomes rose by 1 percent in January while consumer spending was up by 0.5 percent. The income advance was the largest since a 1.3 percent jump in January 2006 and both the income and spending gains were bigger than had been expected.

However, in less upbeat news, the government said that construction activity fell by 0.8 percent in January, double the decline that analysts had been expecting.

The weakness was led by a 1.8 percent plunge in spending on housing construction. It was the 10th consecutive fall in residential construction and a further sign of the steep slowdown in the once-booming sector, a slowdown which has depressed overall economic activity.

Meanwhile, a closely watched barometer of health in manufacturing posted a better-than-expected increase in February. The Institute for Supply Management said its index of activity in manufacturing rose to 52.3 in February, up from January’s reading of 49.3. A reading at 50 or above indicates manufacturing is expanding while one below 50 signals a recession in manufacturing.

Wall Street, which staged a huge sell-off on Tuesday, was basically unimpressed with the latest economic data. The Dow Jones industrial average was down in late morning trading.

Economists, however, took a more positive view, saying that the strength in workers’ incomes and consumer spending were positive signs that the economy will be able to weather the troubles in housing and manufacturing without going into a full-blown recession.

“Consumers remain one of the bright spots of the U.S. economy,” said Nariman Behravesh, chief economist at Global Insight. “Steady consumer spending will prevent the current softness in the economy from turning into anything worse.”

Treasury Secretary Henry Paulson, the Bush administration’s chief economic spokesman, said Thursday that he believed all the statistics showed the economy was successfully transitioning to a more moderate and sustainable rate of growth.

“I am watching developments carefully and I believe that the U.S. economy is healthy,” Paulson told the Economics Club of Washington in remarks two days after Tuesday’s big market sell-off.

In other economic news, the Labor Department reported that the number of newly laid off workers filing claims for unemployment benefits rose by 7,000 last week to 338,000. This increase took economists by surprise. They had been expecting a drop in jobless claims.

The government reported Wednesday that the overall economy, as measured by the gross domestic product, had slowed to a lackluster growth rate of 2.2 percent in the final three months of last year, significantly below an initial estimate of 3.5 percent GDP growth in the fourth quarter.

The weakness reflected steep declines in the once-booming housing industry and in such troubled industries as autos. Also this week, the government reported a big fall in orders to U.S. factories, a drop that raised worries on Wall Street and contributed to a 416-point plunge in the Dow Jones industrial average on Tuesday.

However, Federal Reserve Chairman Ben Bernanke sought to allay investors’ concerns with congressional testimony on Wednesday in which he said the Fed had seen nothing in the new data to shake its view that the economy will rebound moderately this year.

In the spending report, an inflation-gauge that excludes volatile energy and food rose by 0.3 percent in January, the biggest one-month jump since last August. Over the past 12 months, this inflation gauge, which is closely watched by the Federal Reserve, is up by 2.3 percent, still above the Fed’s 1 percent to 2 percent comfort zone.

The 0.5 percent rise in spending followed an even larger 0.7 percent spending increase in December. With incomes rising faster than spending, the savings rate improved somewhat but still remained in negative territory for the 22nd consecutive month. The January reading was a negative 1.2 percent savings rate compared to a negative 1.4 percent savings rate in December.

The construction report showed that total activity fell to a seasonally adjusted annual rate of $1.18 trillion in January, the slowest performance in 15 months.

The 1.8 percent drop in housing activity was the biggest one-month decline since a 1.9 percent fall last July.

Non-residential construction was flat in January, raising concerns over whether this sector will be able to take up some of the slack from the weakness in housing.

Spending on public construction projects rose by 0.6 percent to an all-time high of $285.96 billion at an annual rate in January.

AP-ES-03-01-07 1332EST