US factories hum in June; Germany drives Europe growth

The US manufacturing sector picked up more than expected in June, overcoming a housing market slump, while strength in Germany drove European factory growth, according to data released on Monday.
Surveys of purchasing managers at thousands of companies around the globe showed broad-based expansion - with notable accelerations in the United States, Germany and Spain but eye-catching slowdowns in growth rates in Britain and Japan.
The US Institute for Supply Management's manufacturing index rose to 56.0 in June from 55.0 in May, the highest reading since April 2006 and exceeding economists' expectations for no change.
The report also brought better news on the inflation front, showing that the prices paid component slipped to 68.0 from 71.0. US stocks rose in midday trading, buoyed by the latest evidence of stronger manufacturing and an easing of pricing pressures.
The strong growth bolstered expectations that the US economy revived in the second quarter following an anemic start to the year, when the slumping housing market and an effort by businesses to pare inventories crimped growth. Still, some on Wall Street cautioned that the rebound may prove short-lived.
"Inventory declines in the first quarter have given way to a production rebound in the second quarter," Citigroup economist Steven Wieting wrote in a note to clients. "However, the pace of end demand has moderated in the quarter, and expansions aren't built on inventory recoveries. As such, we imagine today's ISM reading is near the high end of forthcoming readings likely in the current setting."
The Global Manufacturing PMI, produced by J.P. Morgan with research and supply management organisations, rose to 54.4 in June from 54.1 in May, its highest level since last September.
For the 13-country eurozone, the Purchasing Managers Index rose to 55.6, its best since February and up from 55.0 in May, according to NTC Research, the consultancy that conducts the surveys. Germany was the driving force, reporting a five-month high, and Spain, the fourth-biggest economy in the currency bloc, also made big gains, as did the Dutch.
France and Italy, the eurozone's second- and third-largest economies, reported slower growth rates than in May, however. Jacques Cailloux, chief Europe economist at RBS, a bank that sponsors the surveys, said it was too early to talk of a rebound in euro-zone manufacturing growth in the second half of 2007, but he noted that the June pick-up was not solely driven by the top economy.
"Strong readings in Spain and the Netherlands indicate that activity remains robust, not just in Germany," he said. Britain reported a drop, with its PMI index falling to 54.3 from 54.7 in May. Japan also produced a grimmer reading when an equivalent survey was released last week, showing manufacturing at a four-year low in June.
That survey was contradicted on Monday, however, by a less negative one from the Bank of Japan, known as the Tankan report, which economists said was more in line with their expectations of continued steady growth in the world's second- largest economy. Japan's PMI index slipped to 50.4 in June, the weakest level in four years and only marginally above 50 - the dividing line between expansion and contraction. Some economists wrote that off as a hiccup at the time and the Bank of Japan's survey on Monday was better.
Hiroshi Shiraishi, an economist at Lehman Brothers, said the Tankan report supported the belief that Japan could count on further "decent economic growth," adding that the Bank of Japan was still heading for interest-rate increases at some stage. The picture in China was more confusing, with the privately produced PMI index from CLSA bank rising to a 26-month high and a government-sponsored one dropping.