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updated: 7/1/2013 10:02 AM

U.S. factory activity expands in June, jobs decline

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Associated Press

U.S. manufacturing activity grew in June behind a pickup in new orders and stronger production. The increase suggests factories could rebound in the second half of the year and help the economy grow.

The Institute for Supply Management said Monday that its index of factory activity increased to 50.9 in June. That's up from 49 in the May, which was the lowest reading in four years. A reading above 50 suggests growth, while those below indicate contraction.

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Still, a measure of manufacturing employment fell in June to 48.7, its lowest level since September 2009. That suggests that Friday's June employment report will show that factories cut jobs for the fourth straight month.

The mostly positive survey of U.S. manufacturing in June contributed to strong gains on Wall Street and followed mixed reports of factory growth overseas. The Dow Jones industrial average rose 162 points in the first hour of trading, while broader stock indexes also gained.

China's manufacturing sector weakened in June, according to two separate surveys, hurt by falling orders from the U.S. and Europe and by efforts by China's regulators to slow lending.

But in Japan, large manufacturers reported a positive outlook for the first time in nearly two years in June. The quarterly "tankan" survey also showed that the outlook for services firms also increased. The positive reading suggests that businesses are reacting positively to Prime Minister Shinzo Abe's efforts to revive the nation's stagnant economy.

U.S. manufacturing had slowed this year after providing crucial support to the economy for the first three years after recession ended in June 2009. Europe's slump has weighed heavily on U.S. exports. And businesses cut back on their investment in machinery and equipment in the first quarter.

There have been other signs recently that U.S. manufacturers could be starting to recover.

U.S. businesses stepped up their orders for factory goods in April and May. And a category of orders that's viewed as a proxy for business investment plans -- which excludes the volatile areas of transportation and defense -- rose 1.1 percent in May, the third straight gain.

Consumers also spent more in May on cars and trucks, which should keep auto factories humming. Sales at auto dealers rose in May by the most in six months, according to the Commerce Department.

The U.S. economy expanded at only a 1.8 percent annual rate in the first three months of the year, the Commerce Department said this week. That was much slower than its previous estimate of a 2.4 percent rate. The main reason for the lower figure was consumers spent less on services than initially thought. Still, spending on long-lasting factory goods, such as cars and appliances, remained healthy.

Economists expect growth remained tepid in the April-June quarter. Most estimates range between a rate of 1.5 percent and 2 percent.

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