updated 7/1/2005 11:42:53 AM ET 2005-07-01T15:42:53

The U.S. manufacturing sector expanded at a faster-than-expected pace in June, as new orders to factories picked up, a private research group reported Friday.

Major Market Indices

Activity at the nation’s factories increased for a 25th consecutive month, according to figures from the Institute for Supply Management. The June upturn followed six consecutive months of slowing growth in the sector, the group said.

ISM’s manufacturing index registered 53.8 percent in June, up from a reading of 51.4 in May. The new reading was notably higher than the 51.5 figure forecast by analysts.

A reading of 50 or above in the index means the manufacturing sector is expanding. A figure below 50 represents a contraction.

Analysts said the new report offered largely positive news for manufacturing, pointing to a sector that is settling into more normal, sustained expansion.

The ISM reading is “a real good number,” said Joel Naroff of Naroff Economic Advisors in Holland, Pa. “What we saw in the first few months of this year was manufacturing was leveling off. It wasn’t slowing. It was leveling off. I think this report says it’s still in very good shape.”

In a second economic report released Friday, the Commerce Department said construction spending fell by 0.9 percent in May, the third consecutive monthly decline.

The drop to a seasonally adjusted annual total of $1.1 trillion surprised economists, who had been forecasting a rebound in construction of 0.5 percent.

Also Friday, a fresh reading of consumer confidence by the University of Michigan reportedly rose, according to Dow Jones Newswires. The data, which is only released to subscribers, was said to show a rise in the index to 96.0 from 94.8 at mid-month.

In addition to increased manufacturing activity, the report from the Institute for Supply Management indicated a 44th consecutive month of expansion in the overall economy.

“These are the most positive signs that we have seen in several months, and they indicate that we may be through the ’soft patch’ that many observers touted,” said Norbert J. Ore, chair of ISM’s manufacturing business survey committee.

The reading reflects an increased rate of growth in new orders, and a slowing rise in prices paid by manufacturers for raw materials. At the same time, high energy costs and a strong dollar continue to weigh on the sector, Tempe, Ariz.-based ISM said.

Of the 20 industry sector tracked by the group’s survey, 13 reported growth in June, including petroleum, textiles, food, wood and wood products, furniture, instruments and photographic equipment, industrial and commercial equipment and computers, rubber and plastic products, chemicals, electronic components and equipment, printing and publishing and primary metals.

A sub-index tracking new orders rose to 57.2 percent from 51.7 percent in May. A sub-index measuring production also increased, reflecting faster growth.

Naroff said the one concern prompted by the report is slowing growth in exports by U.S. manufacturers. With the dollar strengthening, the question is how much more export business U.S. factories can capture, he said.

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