Reports show U.S. growth weak if not in recession

By Ros Krasny

CHICAGO (Reuters) - The U.S. economy continues to bump along at a slow level of growth but has probably not fallen into recession, a series of regional purchasing managers' reports suggested on Monday.

National surveys this week are expected to show the factory sector shrinking a bit in June while the services side ekes out a small gain. Between the two, the United States is managing to stay in the positive growth column.

The closely watched National Association of Purchasing Management-Chicago survey showed conditions in the Midwest region contracted for a fifth straight month, although at a less severe rate than Wall Street analysts had expected.

"We are surprised that the Chicago PMI was not weaker in June given the region's sensitivity to the ailing auto sector," said Joseph LaVorgna, chief U.S. economist at Deutsche Bank Securities.

The NAPM-Chicago business barometer rose to 49.6 from 49.1 in May, the strongest since January and above the median forecast of 48.0. A reading below 50 indicates contraction. The index has revived from February's 44.5.

"It looks as if manufacturing in the Midwest is holding its own," said Gary Thayer, senior economist at Wachovia Securities in St. Louis. "Things aren't getting a lot better, but are stable at this point,"

Still, sub-components of the Chicago index looked less promising than the headline, analysts noted. Production, at 45.1, was the lowest in 90 months, and new orders dropped to 52.0, the lowest since February.

"In response to the housing slump, higher energy costs and iffy consumer spending in the second half, businesses are cutting their outlays," said Lindsey Piegza, economic analyst at FTN Financial in New York.

Many analysts consider the Chicago survey a factory report since the region is relatively industrialized, although service companies and nonprofits are polled too.

Conditions in the more blue-collar Milwaukee region, north of Chicago, slumped in June as forward-looking indicators such as the level of new orders plummeted.

In both instances, the level of prices paid stayed very high, leaving companies with the decision of whether to pass their cost increases along to customers at a time the economy is struggling and demand, theoretically, is weak.

"Soaring commodity prices have kept producer prices high, squeezing profit margins," said Michelle Meyer, economist at Lehman Brothers in New York.

Still, the Chicago survey suggested that at least some firms are hiking prices -- the kind of second-round inflation that the Federal Reserve is concerned about.

"We were prepared for significant loss of business from a double-digit, across-the-board price increase. However, we found minimal pushback to date," one respondent said.

Also on Monday, new figures showed a downturn in New York City business resumed in June after a brief respite. NAPM-New York's index of local business activity fell to 417.5 in June from 419.8 in May and 419.6 in April. A year ago the index was at 430.1.