U.S. buyers mood lifted in June

NEW YORK (Reuters) - U.S. manufacturing gained momentum inJune while consumer sentiment improved, reports showed onFriday, offering evidence that the economy is strong enough toallow the Federal Reserve to continue raising interest rates tokeep inflation in check.Big consumer incentives contributed to an overall strongsales picture for automakers, especially General Motors Corp.,whose sales jumped 41 percent over the same month last year.
The Institute for Supply Management said a jump in neworders enlivened the manufacturing sector, which overcame thehurdle of soaring energy prices, at least temporarily.
The group said its index of national factory activityclimbed to 53.8 in June from 51.4 in May, well aboveeconomists' forecasts of a slight uptick.
The rise was "a pleasant surprise," said Ian Shepherdson,chief U.S. economist at High Frequency Economics. It "reducesthe odds that the ISM will slip below 50."
A reading above 50 on the ISM index reflects expandingactivity; a reading below 50 signals contraction. June'sincrease eased concerns about a possible retrenchment in theindustrial sector after some regional surveys revealedsurprising weakness.
However, Norbert Ore, the ISM executive in charge of thesurvey, said the June reading was probably a stronger levelthan the index could sustain in the second half of the year.
"What really worries me is that these energy prices seem tobe lingering at very high levels and energy is a tax on growth.Without some relief in energy prices, these levels are going tobe very difficult to maintain," Ore said. "It's above what wecan expect to see in the second half of the year."
Crude oil prices hit a record high near 61 a barrel thisweek before easing back to around 57 on Friday.
The ISM report bolstered the stock market and the dollarbut sapped some strength from safe-haven government debt asinvestors bet a strong economy would let the Federal Reservecontinue raising interest rates, as it did this week for theninth time in a year.
CONSUMER CONFIDENCE UP
While manufacturing skirted contraction in June, Americanconsumers' moods were buoyed by easing gasoline prices and abit of a rise in the stock market.
The University of Michigan said its measure of confidencerose to 96.0 in June from 86.9 in May, according to marketsources who saw the subscription-only report. The preliminaryJune reading was 94.8.
The survey's expectations component rose to 85.0 in Junefrom 75.3 in May, while sentiment on current conditions rose to113.2 from 104.9 in May.
Consumer spending accounts for two-thirds of overall U.S.economic activity, and any improvement in confidence is seen asa precursor to stronger growth.
Steep discounts offered by GM certainly encouragedconsumers to buy cars in June. By offering all customers thesame discount it offers its employees, GM caused its sales tojump sharply, largely at the expense of Ford Motor Co. (NYSE:F - news)
Asian rivals Toyota Motor Corp. (7203.T) and Nissan MotorCorp. (7201.T) also posted double-digit gains, and Toyota saidits first-half sales were the best-ever in 48 years of doingbusiness in the United States.
The GM results aided the world's largest automaker,boosting its market share and offsetting sales declines thatcontributed to a 1.1 billion first-quarter loss.It was the company's strongest sales month since September1986 and GM said it set an all-time industry record for lighttruck sales, which were up 68 percent.GM's Detroit-based rivals struggled to compete with its"Employee Discount for Everyone" incentives program. TheChrysler arm of DaimlerChrysler (NYSECX - news) (DCXGn.DE) said itsU.S. sales rose a wafer-thin 1 percent, and Ford's sales of newcars and trucks fell 2.5 percent.CONSTRUCTION SPENDING SLIPSIn an unexpectedly weak report for a part of the economythat had been buoyed by low interest rates, the government saidconstruction spending fell 0.9 percent in May, Analysts hadexpected a 0.5 percent increase.Private residential construction dropped 1.7 percent,possibly indicating the start of some slowing in the briskhousing market, while private nonresidential construction,often seen as a sign of business confidence, dropped 1.6percent to an annual rate of 241.94 billion.Data also suggested that employers of factory workers werefeeling cautious about hiring. The ISM's manufacturingemployment measure rose to 49.9 from 48.8 in May, animprovement, but still the second month of contraction inmanufacturing employment."Manufacturers aren't purging a large number of jobs, butthey're also not creating a lot of new jobs," said Ore. "We seecomments like 'no replacement for attrition,' 'still reducingpersonnel,' 'hours reduced,' 'summer students added.'New orders, a signal of future growth, surged to 57.2 from51.7. But analysts said the overall monthly gain might be moreof a periodic reprieve than the start of a turnaround.A leading index of the U.S. economy edged higher in thelatest week with help from fewer jobless claims and lowercommodity prices, a report said on Friday.The Economic Cycle Research Institute, an independentforecasting group, said its weekly leading index edged up to133.7 in the week ended June 24 from a downwardly revised 133.3in the prior week."The rise ... makes it clear that economic growth willremain firm in the second half of the year," said AnirvanBanerji, director of research at ECRI.

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