Manufacturing Rebounds in June; Construction Spending Soars

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By Steven C. Johnson and Lucia Mutikani

NEW YORK and WASHINGTON -- U.S. manufacturing activity grew in June, rebounding from an unexpected contraction the prior month, but hiring in the sector was the weakest in nearly four years, an industry report showed on Monday.

The Institute for Supply Management said its index of national factory activity in June rose to 50.9 from 49.0 in May, a touch above of expectations of 50.5. A reading above 50 indicates expansion in the sector.

The gauge for new orders rose to 51.9 from 48.8, while production jumped to 53.4 from 48.6, helping the overall index bounce back from May's contraction - the first in six months.

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But a measure of employment fell to 48.7, the lowest reading since September of 2009. It stood at 50.1 in May.

That could feed concern about the strength of the U.S. recovery, particularly now that the Federal Reserve has said it is considering scaling back its massive stimulus program.

Economists polled by Reuters expect the broader U.S. economy to have slowed to 1.7 percent in the second quarter, though most say it should pick up steam in the second half.

The economy grew at a 1.8 percent rate in the first three months of the year, with consumer spending having grown less than initially thought.

Construction Sector Regains Strength

Separately, the Commerce Department reported U.S. construction spending rose to its highest level in nearly four years in May, as a sharp rebound in public outlays offset a decline in investment in private nonresidential projects, pointing to moderate economic growth.

Construction spending increased 0.5 percent to an annual rate of $874.9 billion, the agency said Monday. That followed a revised 0.1 percent gain in April.

Economists polled by Reuters had expected construction spending to rise 0.6 percent in May after a previously reported 0.4 percent increase the prior month.

The construction sector is regaining some strength after collapsing during the recession, but the recovery remains slow as the commercial real estate market and factory construction is yet to pick up. The housing market is leading much of the recovery in construction.

In the first quarter, growth in spending on nonresidential structures contracted for the first time in two years.

Construction spending in May was lifted by a 1.8 percent rise in public construction projects, the biggest rise in nearly a year, after two straight months of declines. Public construction spending in May touched its highest level since November last year.

Outlays on federal government projects rose 0.6 percent, advancing for a second straight month. State and local spending, which is far larger than federal projects, jumped 1.9 percent to a six-month high.

Spending on private construction projects was flat. Residential construction spending increased 1.2 percent to its highest level since October 2008. Spending had dipped 0.1 percent in April, and part of the increase in May was due to renovations, which do not go into the calculation of GDP.

Spending on private nonresidential structures fell 1.4 percent in May after three straight months of gains.