Manufacturing activity grew faster in June

Manufacturing activity recovered somewhat in June from a sharp slowdown in May.

Manufacturing activity recovered somewhat in June from a sharp slowdown in May.

The rebound suggested that the pain from the late-spring spike in gas prices and supply problems that hurt auto sales are easing.

But growth was muted compared to earlier this year, suggesting that the recovery is still weak.

The Institute for Supply Management, a trade group of purchasing executives, said Friday that its index of manufacturing activity rose to 55.3 in June from 53.5 in May, the slowest growth in 20 months.

A reading above 50 indicates that the manufacturing sector is expanding. The index had topped 60 from January to April.

The June increase surprised economists who had been expecting, on average, a further decline to 52, according to a survey by FactSet.

The economy grew only 1.9 percent in the January-March period, the government said last week. Most economists have expected growth to be similarly weak in the current April-June period.

The ISM report gives investors some hope that growth will be stronger in the second half of the year, said IHS Global Insight economist Nigel Gault.

That helped propel Wall Street. The Dow Jones industrial average rose 106 points, or 0.9 percent, to 12,520 in late morning trading. The S&P 500 rose 0.7 percent.

There were slightly more new orders for goods in June, and employment picked up. Manufacturers are adding to their stockpiles again.

In May, high gas prices had cut into consumer spending, hurting demand for goods, and there was an auto parts shortage stemming from Japan's March 11 earthquake that dented auto sales.

But gas prices have come down after spiking to almost $4 a gallon in May, and the price of oil is below $100 a barrel.

Economists are also counting on a recovery in auto production to boost second half growth. Deutsche Bank economists estimate that improved auto manufacturing could add as much as a full percentage point to third and fourth quarter growth.

But other sectors of the economy are struggling, and there are signs of slowing growth overseas.

U.S. construction spending declined 0.6 percent in May to a seasonally adjusted annual rate of $757.9 billion, the Commerce Department said Friday. That's roughly half the $1.5 trillion pace considered healthy by most economists.

Builders began work on fewer projects in May. There were steep declines in apartment construction and state and local governments spent less.

Some signs from abroad are troubling, too. Chinese manufacturing slipped to its slowest pace in 28 months in June, dragged down by rising interest rates and declining exports, according to surveys released Friday in China.

That suggests problems in the U.S. The factory sector has been the primary driver of the recovery, growing now for 23 straight months. And strong growth overseas has been a key part of that growth for large manufacturers of industrial equipment and machinery, such as Caterpillar Inc.

The ISM, a trade group of purchasing executives based in Tempe, Ariz., compiles its manufacturing index by surveying about 300 purchasing executives across the country.

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