Wed Aug 4, 2004
By Alister Bull

WASHINGTON (Reuters) - New orders at U.S. factories rose by more than expected in June and May's fall was revised to show a gain, government data showed on Wednesday, while a jump in a key service sector poll added to the upbeat outlook.

The Commerce Department said factory orders advanced 0.7 percent in June, after a revised 0.4 percent gain in May that was initially reported as a 0.3 percent fall.

Wall Street had forecast orders to grow 0.5 percent in June and the data dovetailed with an Institute for Supply Management report on Monday showing U.S. factories stepped up the pace in July.

A separate report on Wednesday showed the rise carried into the service sector, which accounts for 80 percent of the U.S. economy, with the ISM non-manufacturing index rising to 64.8 in July from 59.9 in June. Wall Street had expected a weaker reading of 61.

STILL STRONG

"Both numbers suggest that there's still strength in the economy," said Gary Thayer, chief economist at A.G. Edwards & Sons in St Louis, Missouri.

"June factory orders were up for the second consecutive month, suggesting that the slower growth we saw in the second quarter may be temporary. The ISM non-manufacturing index shows that the service side of the economy continues to expand at a very robust pace," he said.

The dollar weakened a fraction against the euro after initially firming on the strong ISM report, trading around $1.2015 (EUR=: Quote, Profile, Research) while yields on the U.S. government's 10-year Treasury note held steady around 4.44 percent.

The factory orders report was more upbeat than Tuesday's data showing U.S. consumer spending took a deeper dive than expected in June.

Spending fell 0.7 percent in the month after rising 1.0 percent in May, although an advance in July vehicle sales signaled the consumption soft spot may prove short-lived.

"The overarching question is: we had a lot of weak numbers in June, an unexpected slowdown in GDP (gross domestic product) in the second quarter -- does it all just boil down to maybe one bad month driven by high oil prices?" asked Bill Cheney, chief economist at John Hancock Financial Services in Boston.

"Increasingly, I think that is what it looks like. But we probably won't have any real clarity until we get the employment report on Friday," he said.
Economists polled by Reuters expect July nonfarm payrolls, due out on Friday, to show the U.S. economy created 228,000 new jobs compared with a disappointing 112,000 in June.

FACTORIES ROLL

The Commerce Department said demand for durable goods -- big-ticket items meant to last three years or more -- rose a revised 0.9 percent. Durables orders were initially reported as up a smaller 0.7 percent.

Non-durable goods, which make up just under half of all factory orders, were up 0.5 percent after a revised 2.0 percent climb in May, a gain previously reported as 1.5 percent.

Stripping out transportation cut the June factory orders advance to 0.1 percent.

Factory inventories grew 0.7 percent in June and total durable goods inventories rose 0.9 percent, the highest rise since a matching gain in December 1999. The inventories-to-shipments ratio, an indication of how fast inventories would deplete at the current pace of shipments, was unchanged at 1.23 months.

Mortgage Rates News, Mortgage News, Financial News