US factory activity jumps in June

Construction spending holds steady in May

WASHINGTON: US factory activity rose sharply in June to its highest level in almost three years suggesting economic growth in the second quarter gained some steam, while construction spending held steady in May.

The Institute for Supply Management (ISM) said on Monday that its index of national factory activity rose to a reading of 57.8 last month, its best performance since August 2014, from 54.9 in May.

A reading above 50 in the ISM index indicates an expansion in manufacturing, which accounts for roughly 12% of the overall US economy.

“The ISM index provides further evidence that the prospects for the manufacturing sector remain bright,” said Andrew Hunter, an economist at Capital Economics.

The reading adds to encouraging signs that the US economy rebounded strongly in the April-June quarter.

Following the data, the Atlanta Federal Reserve raised its forecast for secondquarter GDP to a 3% annualised rate from its previous forecast of 2.7%.

On Friday, the Commerce Department also reported that the US economy slowed less than feared in the first quarter due largely to a jump in consumer spending, providing a slightly more encouraging outlook for growth this year.

Gross domestic product increased at a 1.4% annual rate instead of the 1.2% reported last month, the department said in its final assessment for the period.

The ISM survey’s new orders subindex rose to 63.5 in June from 59.5 the prior month. A measure of factory employment increased to a reading of 57.2 from 53.5 in May.

According to ISM, comments from those surveyed generally reflected expanding conditions, “with new orders, production, employment, backlog and exports all growing in June compared to May and with supplier deliveries and inventories struggling to keep up with the production pace.”

Fifteen of the 18 manufacturing industries reported growth in June.

Another survey released on Monday, the Markit Manufacturing Purchasing Managers’ Index, gave its lowest reading since last September. The seasonally adjusted index registered 52.0 in June, down from 52.7 during May.

Slower rates of output and new business growth were the main factors weighing on the headline PMI in June, which more than offset a stronger contribution from the stocks of purchases component, Markit Economics said.

Meanwhile, US construction spending unexpectedly remained flat in May but federal government outlays on construction projects were the highest in more than four years.

The Commerce Department said on Monday that construction spending in May remained unchanged at $1.23 trillion. Spending in April was revised to show it declining 0.7% after a previously reported 1.4% fall.

Economists polled by Reuters had forecast construction spending rising 0.3% in May. Construction spending increased 4.5% from a year ago.

Federal government construction spending jumped 6.4% in May to its highest level since January 2013.

The May construction spending release included revisions to data back to January 2015, the Commerce Department said.

In May, private construction spending fell 0.6%, the biggest decline since October 2015, after declining 0.2% in April. Investment in private residential construction also declined 0.6%, the biggest fall since July 2014, after rising 0.5% the prior month.

Spending on private nonresidential structures fell 0.7% in May, the fifth straight monthly decline. Investment in public construction projects rose 2.1% in May after dropping 2.7% in April.

Outlays on state and local government construction projects increased 1.7% in May after falling 2.7% in April.