factory data, auto sales improve, construction spending
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[July 02, 2016]
By David Lawder
WASHINGTON (Reuters) - U.S. factory
activity expanded at a healthy pace in June as new orders, output and
exports rose, new industry data showed on Friday, providing another sign
that U.S. economic growth was regaining its footing after weakness early
Automakers reported higher June sales amid strong demand for pickup
trucks and sport utility vehicles, but on an annualized basis, the
June industry selling rate came in at 16.66 million units, well
below May's sales pace of 17.45 million.
Ford Motor Co and Fiat Chrysler reported June sales gains of 6.4
percent and 6.5 percent, but General Motors, Toyota Motor Corp and
Volkswagen all sold fewer vehicles.
Some analysts say that industry sales may have peaked in 2015 at
17.45 million units, but GM chief economist Mustafa Mohatarem still
held out hope for another record year.
"Positive economic indicators like historically low interest rates,
stable fuel prices, rising wages and near-full employment provide
the environment for strong auto sales to continue in the second half
of the year," Mohatarem said in a statement.
But the positive for manufacturing and autos was dampened by a
second straight monthly drop in construction spending in May.
The weaker construction data could prompt some economists to trim
back their second-quarter growth estimates and could help reinforce
the Federal Reserve's view that there is currently too much
uncertainty over global and U.S. growth to raise interest rates in
the near term.
"Net-net it is a certainly a bit of a mixed picture, a mixed bag,
but I think in terms of direction, what is evidenced here, is that
growth momentum has rebounded," said Millan Mulraine, deputy chief
economist at TD Securities in New York.
He added that a major "asterisk" to the improvement is that the data
surveys predate Britain's vote last week to leave the European
Union, which has injected a big source of uncertainty to the global
The Institute for Supply Management said its national factory index
rose to 53.2 in June, the highest since February last year, from
51.3 in May. A reading above 50 indicates expansion in the
manufacturing sector, which accounts for about 12 percent of the
The ISM new factory orders index in June showed a reading of 57.0
compared with 55.7 in May, while export orders showed 53.5 versus
52.5. The order backlog index rose to 52.5 from 47.0, while
production rose to 54.7 from 52.6.
The employment index rose to 50.4 in June from 49.2 in May, for its
first reading over 50 since November.
U.S. stocks rose after the ISM data, and major indexes all closed
higher for the fourth day in a row, to recover nearly all of their
sharp losses in the wake of the "Brexit" vote. The dollar fell
against a basket of currencies as benchmark U.S. Treasury yields
fell, with the 30-year bond yield at its lowest since the 1950s.
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While the International Monetary Fund anticipates that uncertainty over
Britain's departure from the EU will dampen near-term global growth, it remains
unclear how much Brexit might affect U.S. demand.
In addition to its factory index, ISM on Friday released a survey that showed 61
percent of businesses saw a negligible impact from Britain's EU vote for the
remainder of this year. It showed only six percent forecasting a negative
impact, and there was little difference between manufacturing and
Manufacturing remains constrained by the lingering effects of the dollar's surge
and the oil price plunge between June 2014 and December 2015. The sector has
also been hurt by business efforts to reduce an inventory glut, which has
The Commerce Department said on Friday that May construction spending fell 0.8
percent after a downwardly revised 2.0 percent drop in April. The revised April
drop was the largest since January 2011.
Economists polled by Reuters had forecast construction spending rising 0.6
percent after a previously reported April drop of 1.8 percent. May construction
outlays were up 2.8 percent from a year earlier.
May construction spending was held down by a 2.3 percent drop in public
construction spending. Outlays on state and local construction projects, the
largest of the public sector segment, tumbled 3.0 percent, while federal
construction spending rose 7.5 percent.
Private construction spending fell by 0.3 percent after a downwardly revised 1.9
percent fall in April. Outlays on private residential construction were flat,
while spending on private nonresidential construction was down 0.7 percent.
(Reporting By David Lawder; Editing by Andrea Ricci)
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