Photographer: Luke Sharrett/Bloomberg

U.S. Manufacturing Grows at Fastest Pace in More Than a Year

Factory activity expanded in June at the fastest clip in more than a year, an encouraging sign that American manufacturers are gaining traction.

The Institute for Supply Management’s index increased to 53.2 last month, the highest since February 2015 and exceeding the most optimistic projection in a Bloomberg survey of economists, from 51.3 in May, data from the Tempe, Arizona-based group showed Friday.

Improving consumer spending is helping pull manufacturing out of a prolonged slump that began in early 2015 as a surging dollar hurt exports and the slump in oil prices curbed investment in the energy industry. Strengthening indexes of bookings and production, which reached three-month highs, signal factory gains will be sustained.

"Manufacturing output has been close to zero for the past year, and hopefully the rise in the index is a sign that the pace of deterioration in some manufacturing industries has stabilized,” said Ryan Wang, an economist at HSBC Securities USA Inc. in New York who forecast that the factory gauge would improve. “Manufacturing firms that produce consumer goods continue to see solid demand.”

While the ISM’s export orders index climbed to the highest level since November 2014 -- a tentative sign that global demand is beginning to stabilize -- the group will issue results later Friday from a separate survey detailing the impact of the U.K.’s vote to leave the European Union.

Survey Results

Readings higher than 50 indicate growth in the industry, and the Bloomberg survey median called for the June index to hold at 51.3. Economists’ estimates ranged from 50 to 52.5.

“We’re on a pretty good trend,” Bradley Holcomb, chairman of the ISM factory survey, said on a conference call with reporters. “It’s not robust -- I wouldn’t say that -- but it’s definitely firming up.”

The new orders gauge rose last month to 57 from 55.7, while the index of bookings from overseas customers advanced by 1 point to 53.5.

A decline in the value of the dollar this year may be starting to filter through into improving export demand. Nonetheless, a more recent advance in the greenback, in the wake of the Brexit vote, underscores the possibility of more complications for American producers.

“The fallout from Brexit has some risks going forward,” said David Sloan, senior economist at 4cast Inc. in New York. “There’s still a lot to be worried about in the manufacturing sector.” The ISM’s measure of production increased to 54.7 from 52.6. The index of supplier deliveries rose to 55.4 from 54.1. That was the highest since December 2014 and shows stronger demand is delaying shipments.

Factory Employment

The report also showed a gauge of factory employment index increased to 50.4, the first print above 50 since November, from 49.2 to indicate the worst of the industry’s cutbacks in headcounts are over.

The gauge of factory inventories rose to 48.5 in June from 45, while customer stockpiles climbed to 51 from 50.

The prices-paid index fell to 60.5 from 63.5, still marking the fourth straight month in which more producers reported higher costs.

The factory data followed a report earlier this week that showed consumers continued spending last month following an April surge on the heels of steady job growth and a nascent pickup in wages. Personal spending climbed 0.4 percent in May after a 1.1 percent jump a month earlier that was more than initially estimated, the Commerce Department figures showed.

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