U.S. manufacturing activity expanded for the first time in five months in June, thanks to strong exports, but the minimal growth came as inventories climbed and prices rose for every commodity except copper, a private industry group said on Tuesday.
The reading of 50.2 from the Institute for Supply Management was up from 49.6 in May. It beat economists’ prediction of a reading of 48.7, according to the consensus estimate of Wall Street economists surveyed by Thomson Financial/IFR. A reading above 50 signals growth.
The prices paid index, which tracks monthly price increases, reached 91.5, up from 87 in May. It was the index’s highest reading since 1979 and it robbed Wall Street of any joy from the overall index’s improvement.
Separately, construction spending underlined the weakness, falling in May for the 11th time in the past year, dropping 0.4 percent, according to the Commerce Department.
For the previous four months, the overall manufacturing index had hovered near its lowest level in five years.
Manufacturers are “experiencing higher prices for their inputs while demand for their products is slowing,” Norbert J. Ore, chairman of ISM’s manufacturing business survey committee, said in a statement accompanying the report.
The weak dollar and robust growth in Europe boosted exports, which were the main factor in the sector’s growth.
“The domestic side is fundamentally weak,” said Leo Kamp, chief economist at TIAA-CREF.
Higher energy prices are “going to end up pretty much destroying a lot of demand,” said Bob Steder, operations manager at Farmers Factory, a manufacturer of plows, pallet forks and bale movers based in Cedar Rapids, Iowa.