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 The economy sank in the first quarter under the weight of a brutally
cold winter and a slow pace of restocking by businesses. But
businesses appear to rebuilding inventories, with new orders at
factories hitting a five-month high in May.
"It points to an acceleration in economic activity. We expect GDP
growth to pick up meaningfully this quarter, with the pace of growth
rising to around 4.0 percent," said Millan Mulraine, deputy chief
economist at TD Securities in New York.
The Institute for Supply Management said on Monday its index of
national factory activity increased to 55.4 in May from 54.9 in
April. The ISM had earlier mistakenly reported the index fell to
53.2 in May. A reading above 50 indicates expansion.
There were gains in new orders, production and customer inventories,
but factory job growth slowed. That suggests Friday's closely
watched employment report could show a moderation in hiring in May
from April's brisk 288,000 jobs.
The ISM survey also hinted at a pick-up in inflation pressures, with
manufacturers reporting an increase in raw material prices.
MANUFACTURING FIRMING
The firmer manufacturing tone was corroborated by a separate report
from financial data firm Markit. Markit said its final U.S.
manufacturing Purchasing Mangers Index rose to 56.4 last month from
55.4 in April.
In a separate report, the Commerce Department said construction
spending increased 0.2 percent in April to an annual rate of $953.5
billion, the highest level since March 2009.
While the increase was smaller than economists had expected, the
spending figure for March was revised to show a 0.6 percent rise
instead of the previously reported 0.2 percent advance.
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"We anticipate that construction spending will continue to
strengthen in the second quarter, more than making up for
first-quarter softness," said Stephanie Karol, an economist at IHS
Global Insight in Lexington, Massachusetts.
Investment in home building and nonresidential structures, such as
factories and gas pipelines, contracted in the first three months of
this year for a second straight quarter, helping to depress the
economy, which shrank at a 1.0 percent annual rate.
Construction spending in April was led by public outlays, which rose
0.8 percent. Spending on both federal and state and local projects
increased solidly, suggesting a long-running decline in public
construction spending had bottomed.
Spending on private construction projects was flat. Still, private
residential construction spending hit its highest level since March
2008.
(Reporting By Lucia Mutikani; Additional reporting by Rodrigo Campos
in New York; Editing by Andrea Ricci)
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