US manufacturing rises but consumers remain wary

NEW YORK: The pace of growth in US manufacturing picked up for the first time in four months in June, fueling optimism the recent economic slowdown will be temporary.

Although lower gas prices helped temper a drop in overall consumer sentiment last month, according to a separate survey on Friday, their expectations for the economy remained gloomy.

The manufacturing report eased fears over the strength of the recovery, though some economists cautioned it was too soon to tell if economic growth had turned a corner.

Many economists and the Federal Reserve, which ended its latest round of monetary stimulus on Thursday as the second quarter ended, have maintained the obstacles to growth in the first six months of the year were temporary.

The Institute for Supply Management said its index of national factory activity rose to 55.3 from 53.5 the month before. The reading topped expectations for 51.8, according to a Reuters poll of economists. "It indicates perhaps the biggest weakness will be in May," said Michael Gapen, chief US economist at Barclays Capital in New York. "It sets the groundwork for acceleration in growth for the second half of the year."

US stocks added to gains immediately following the data, while Treasury prices turned negative and the dollar extended gains against the yen.

A reading above 50 indicates expansion in the manufacturing sector, while a number below 50 means contraction.

The prices paid index fell to its lowest since August 2010 at 68.0 from 76.5, while inventories rose to 54.1 from 48.7. But new orders rose only marginally to 51.6 from 51.0 and analysts noted that the details of the report were not as robust as the main figure.

Separate data on the consumer was less encouraging as sentiment worsened in June. Falling gasoline prices stabilized consumers' view of their current economic conditions, but longer-term expectations remained gloomy, the Thomson Reuters/University of Michigan survey showed.

While small spending gains can be expected in the second half of the year, the trend is more likely to vary between lackluster and zero than lackluster and robust over the next several years, the survey said.

The final reading for the consumer sentiment index came in at 71.5, down from 74.3 the month before. It was a hair below the preliminary June figure of 71.8 and shy of the median forecast for 71.9.

The survey's barometer of current economic conditions edged up to 82.0 from 81.9 in May. The gauge of consumer expectations fell to 64.8 from 69.5 and below forecasts for 66.6.

Consumers' one-year inflation outlook fell to 3.8 percent from 4.1 percent. But the five-to-10-year inflation outlook inched up to 3.0 percent from 2.9 percent.

A separate measure of future US economic growth fell to a 29-week low in the latest week, according to the Economic Cycle Research Institute, a New York-based independent forecasting group.

The Weekly Leading Index fell to 126.4 in the week ended June 24 from 127.0 the previous week and its lowest point since December 3, 2010.

The index's annualized growth rate also dropped, to 2 percent from 2.9 percent a week earlier, reaching its lowest point since December 17, 2010.

COPYRIGHT REUTERS, 2011