Factory Index Strong, but Job Claims Increase

by Bloomberg News

A gauge of manufacturing held close to a 20-year high in June and construction spending increased for a fourth consecutive month, reinforcing forecasts that the economy is expanding, according to reports released yesterday.

Separately, though, the Labor Department said that the number of Americans filing initial claims for unemployment benefits unexpectedly rose last week, up 1,000, to 351,000. It was the second consecutive increase; Bloomberg survey economists had forecast a drop instead, to 342,000. The four-week moving average of claims, which tends to smooth out weekly fluctuations, also rose - to 347,000 from 344,500.

The Institute for Supply Management's factory index was 61.1 in June after a reading of 62.8 in May. The index, where readings above 50 signal expansion, reached 63.6 in January, the highest since December 1983.

Economists had expected a reading of 61 in the factory index. The index has indicated expansion every month since June 2003, and has exceeded 60 for eight consecutive months, the longest such stretch since February 1984. Gauges of production, new orders, inventories, export orders and employment all showed increases in June.

"The manufacturing sector remains quite strong, even if the rate of growth is cooling a bit," said Joel Naroff, chief economist at Naroff Economic Advisers in Holland, Pa. Factories "are hiring more people and have even started building inventories."

Construction spending rose 0.3 percent in May, the Commerce Department said. The increase pushed construction spending to a record annual pace of $988.5 billion in May, bolstered by a 0.8 percent gain in home construction. April's revised gain was 1.2 percent. Home building will add to growth in coming months as builders fill orders, economists say.

Today, the Labor Department is to report employment figures for June. Economists surveyed by Bloomberg News predict that 250,000 jobs were added. On Wednesday, the Federal Reserve raised interest rates for the first time in four years amid stronger growth and "somewhat elevated" inflation.

Jobless benefit claims have averaged 347,200 a week this year, about 55,000 fewer than last year's average. Claims are "consistent with a continued strong labor market," said Joshua Shapiro, chief United States economist at MFR Inc., "because we don't think claims can get much lower in a market of this size."