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updated 7/1/2011 11:21:31 AM ET 2011-07-01T15:21:31

The pace of growth in the U.S. manufacturing sector picked up for the first time in four months in June, a sign of optimism for the sputtering economy, according to an industry report released on Friday.

The Institute for Supply Management, a trade group of purchasing executives, said that its index of manufacturing activity rose to 55.3 in June from 53.5 in May, the slowest growth in 20 months.

A reading above 50 indicates that the manufacturing sector is expanding.

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There were more new orders for goods, and employment picked up last month. But the ISM index remains markedly lower than it was earlier this year, suggesting that the recovery is weak.

The June increase surprised economists who had been expecting, on average, a further decline to 52, according to a survey by FactSet.

The factory sector has been the primary driver of the recovery, growing now for 23 straight months. Large manufacturers of industrial equipment and machinery, such as Caterpillar Inc., have benefited from strong growth overseas and a weaker dollar.

Growth had slowed sharply in May, however. High gas prices cut into consumer spending and there was an auto parts shortage stemming from Japan's March 11 earthquake.

But gas prices have come down after spiking to almost $4 a gallon in May, and the price of oil is below $100 a barrel.

Economists are also counting on a recovery in auto production to boost second half growth. Deutsche Bank economists estimate that improved auto manufacturing could add as much as a full percentage point to third and fourth quarter growth.

The economy grew only 1.9 percent in the January-March period, the government said last week. Most economists have expected growth to be similarly weak in the current April-June period.

The ISM, a trade group of purchasing executives based in Tempe, Ariz., compiles its manufacturing index by surveying about 300 purchasing executives across the country.

In other economic news Friday, U.S. consumer sentiment worsened in June on jitters about the economic outlook, while a report on construction spending showed that sector was flat in May.

The Associated Press and Reuters contributed to this report.

Video: Manufacturing perks up


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