Factory data points at second-quarter growth pick up

WASHINGTON, Mon Jun 2, 2014 6:42pm EDT

Workers at South Carolina Boeing work on a 787 Dreamliner for Air India at the plant's final assembly building in North Charleston, South Carolina December 19, 2013.  REUTERS/Randall Hill

Workers at South Carolina Boeing work on a 787 Dreamliner for Air India at the plant's final assembly building in North Charleston, South Carolina December 19, 2013.

Credit: Reuters/Randall Hill

WASHINGTON, (Reuters) - U.S. manufacturing activity accelerated in May and construction spending rose for a third straight month in April, suggesting economic growth was regaining steam in the second quarter.

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.

"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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