Manufacturing in U.S. Expands at Fastest Pace in Five Months

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Manufacturing expanded in June at the fastest pace in five months, indicating domestic demand is allowing America’s factories to withstand sluggish overseas economies.

The Institute for Supply Management’s factory index increased to 53.5 in June from 52.8 the prior month, the Tempe, Arizona-based group’s report showed Wednesday. Readings above 50 indicate expansion. The figure was in line with the Bloomberg survey median forecast of 53.2.

A gain in orders last month indicates U.S. customers are providing a cushion for factories against of backdrop of limited prospects for overseas sales. At the same time, without stronger business investment to complement a rebound in consumer spending, a more pronounced pickup in manufacturing that spurs the economy may prove elusive.

“Manufacturing has picked up after a lull -- with fits and starts, it’s gradually re-accelerating,” said Robert Stein, deputy chief economist at First Trust Portfolios LP in Wheaton, Illinois, who correctly forecast the index. “It’s not gangbusters, white-hot economic boom by any stretch of the imagination, but we are making progress.”

Eleven of 18 manufacturing industries expanded in June, led by makers of furniture and wood products. Producers of oil, metals, plastics and machinery said business contracted.

Estimates in the Bloomberg survey ranged from 52 to 55, with readings greater than 50 indicating growth.

Stocks Advance

Stocks advanced after the figures and as Greece signaled it was ready to compromise to end a standoff over a bailout. The Standard & Poor’s 500 Index climbed 0.8 percent to 2,079.83 at 10:28 a.m. in New York.

The ISM’s new orders measure improved to 56 last month, the highest this year, from 55.8 in May, while the production gauge eased to 54 from 54.5.

The measure of manufacturing employment increased to 55.5, the highest since December, from 51.7 in May.

The nation’s factories added 7,000 workers in June, helping boost employment at U.S. companies by the most in six months, a report from ADP Research Institute showed Wednesday. The 237,000 increase in overall payrolls exceeded the median projection in a Bloomberg survey and followed a 203,000 gain a month earlier, according to ADP.

Order Backlogs

A more cautionary note for those on America’s assembly lines was a drop in orders waiting to be filled. The ISM’s gauge of backlogs slumped to 47, the weakest since January, from 53.5 a month earlier.

The inventory gauge increased to 53 last month from 51.5, while the index of customer stockpiles rose to 48.5 from 45.5, indicating companies are paring inventories at a slower rate.

Elsewhere in the world, factory activity is tepid. Chinese manufacturing was close to stagnation in June. The official gauge of purchasing managers was 50.2 for a second month.

In the U.K., manufacturing growth unexpectedly slowed last month, posting its weakest performance in more than two years as demand in Europe faltered. Markit Economics said its final June purchasing managers’ gauge fell to 51.4 from 51.9 in May, while a measure of export orders dropped for a third month.

European Manufacturing

Markit’s euro-region manufacturing index was little changed at 52.5 last month after a May reading of 52.2.

The London-based group’s U.S. final June index was close to the ISM figures this month. Markit’s gauge of manufacturing was 53.6 compared with 54 a month earlier, the London-based group said Wednesday.

An improvement in demand for manufactured goods would help create a virtuous cycle of growth, wherein factories boost headcount to help meet orders and consumers, armed with a new paycheck, spend more.

American producers remain cautious. The U.S. is still in a “spotty situation,” said Peter Huntsman, chief executive officer at chemical manufacturer Huntsman Corp. Still, “I’m pretty bullish and we continue to see good signs in North America depending on what sector of the economy.”

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