(Adds auto sales data, updates with market close)
* Factory activity holds steady in June, but orders rise
* Automakers report unexpectedly better sales
* Construction spending nudges up 0.1 percent in May
By Lucia Mutikani
WASHINGTON, July 1 U.S. manufacturing activity
rose at a steady clip in June and automobile sales raced to
their highest level in almost eight years, pointing to momentum
in the economy after a turbulent start to the year.
The data on Tuesday painted an upbeat picture for the second
quarter and underscored the strength in the economy heading into
the last half of the year.
"We come away from these reports with a higher level of
conviction that the U.S. economic recovery is strengthening,"
said Millan Mulraine, deputy chief economist at TD Securities in
The Institute for Supply Management said its index of
national factory activity for June was at 55.3, little changed
from May's 55.4 reading. A figure above 50 indicates expansion.
Notably, a gauge of new orders hit a six-month high in a
good omen for business capital spending, which appeared to
struggle during the first half of the year.
From transportation equipment to machinery and computer and
electronic products, manufacturers were quite bullish in their
assessment of business conditions.
"It's all very constructive. The second half of the year
should look much, much better for capex (capital expenditure)
investment," said Jacob Oubina, senior U.S economist at RBC
Capital Markets in New York.
In a separate report Autodata Corp said auto sales increased
1.2 percent to a seasonally adjusted annual pace of 16.98
million units last month, the highest rate since July 2006.
The increase came even though there were two fewer selling
days than a year ago.
Most major automakers beat expectations, and sales at the
top-selling manufacturer in the U.S. market, General Motors Co
, rose 1 percent despite its ongoing safety crisis.
Analysts had expected GM's sales to fall 6 percent.
The reports reinforced views the economy has rebounded after
a weather-induced slump and helped push up U.S. stock prices,
with the S&P 500 closing at a record high. Prices for
U.S. Treasury debt fell, while the dollar was little changed
against a basket of currencies.
NOT ALL ROSY
But it was not all good news. The ISM survey showed weak
export orders and a jump in imports, indicating trade would
again be a drag on growth in the second quarter.
The economy contracted at a 2.9 percent annual pace in the
first three months of the year, undercut by the weather and a
slow pace of inventory accumulation by businesses.
Second-quarter growth forecasts, in contrast, range as high as a
3.5 percent pace.
In another report, the Commerce Department said construction
spending edged up 0.1 percent in May after rising by 0.8 percent
the prior month.
A 0.3 percent drop in private construction, which represents
more than two-thirds of construction spending, largely offset a
1.0 percent rise in public construction.
While private residential construction tumbled 1.5 percent,
economists were little concerned, pointing to recent data
suggesting the housing market recovery was back on track.
Construction spending by the federal government dropped 8.9
percent, the largest fall since December 2010. State and local
government spending, however, increased 2.0 percent.
(Reporting by Lucia Mutikani; Additional reporting by Ryan
Vlastelica in New York.; Editing by Paul Simao)