WRAPUP 3-US manufacturing, construction data boost growth view

* Manufacturing expands for 10th straight month

* Manufacturing employment index best in six years

* Construction spending sees largest gain in nearly 10 yrs

(Updates markets to close)

By Lucia Mutikani

WASHINGTON, June 1 (BestGrowthStock) – U.S. manufacturing grew for
a 10th straight month in May and construction spending notched
its fastest pace in nearly 10 years in April, suggesting the
U.S. economy will add jobs and weather Europe’s debt storm.

While the expansion in manufacturing was a touch slower
than the prior month, the report on Tuesday showed underlying
strength in the sector with the employment measure touching its
highest in six years.

“Thus far there is no evidence of a significant negative
hit to export orders from the euro zone crisis or a prospective
easing in the Chinese economy,” said Brian Bethune, chief U.S.
financial economist at IHS Global Insight in Lexington,
Massachusetts.

There are fears spending cuts in Europe to address huge
budget deficits could hurt demand and curb U.S. exports to the
region, potentially slowing the recovery of the world’s biggest
economy that started in the second half of 2009.

The Institute for Supply Management’s index of national
factory activity slipped to 59.7 from 60.4 in April, but was
above market expectations for 59.0.

A reading above 50 indicates expansion in the sector.

Export orders were the highest since December 1988.

Separately, construction spending in April rose 2.7
percent, the biggest advance since August 2000, from a gain of
0.4 percent in March, a Commerce Department report showed.

That was well above market expectations for a flat reading
and gains were broad-based.

Stocks on Wall Street initially rose on the data, but major
indices ended more than 1 percent down as energy shares tumbled
in the wake of BP’s (BP.N: ) failed attempt to contain an oil
spill in the Gulf of Mexico rated the worst in U.S. history.

Prices for U.S. government debt rose and the dollar climbed
to a fresh four-year high versus the euro.

EMPLOYMENT IMPROVING

Manufacturing has largely led the economy’s recovery from
the longest and deepest recession since the 1930s. Consumers
are now stepping forward as the labor market improves.

A measure of manufacturing employment last month rose to
its highest level in six years, boding well for May’s closely
watched employment report due on Friday.

A Reuters survey predicted nonfarm payrolls increased
513,000 — the biggest single monthly gain since 1983 — after
a 290,000 rise in April although more than two-thirds of the
gain was due to government jobs for the 2010 census.

The unemployment rate is expected to have edged down to 9.8
percent from 9.9 percent and remain a drag on President Barack
Obama’s popularity. High unemployment threatens to damage the
Democrats at the midterm congressional elections in November.

Economists are upbeat on the labor market’s prospects and
noted the rise in manufacturing employment, a sector not
usually associated with jobs growth, underscored the strength
of the sector’s recovery.

“The supply chain pipeline is filling with orders and
manufacturing firms are reluctantly, but out of necessity,
adding staff,” said Daniel Meckstroth, chief economist at
Manufacturers Alliance/MAPI in Arlington, Virginia.

Factory activity in the euro zone expanded at a more
sluggish pace in May from the prior month. In China,
manufacturing grew for a 15th straight month, but the rate of
expansion slowed from April. [ID:nN01231825]

New orders and production at U.S. manufacturers held steady
last month and inventories fell. However, the backlog of orders
increased, which should keep factories busy.

Adding to the positive economic note, construction spending
increased across the board in April, with investment in private
construction rising for the first time since October.

Analysts said the data was positive for overall economic
growth in the second quarter.

Investment in private construction surged 2.9 percent, the
largest increase since July 2004, after declining 0.5 percent
in March, the Commerce Department report showed.

Spending was lifted by a 4.4 percent rise in private home
building, the biggest gain in six months.

“The pick-up in residential spending is consistent with
robust gains in new home sales and very low inventories,” said
Julia Coronado, senior U.S. economist at BNP Paribas in New
York. “This should be a positive for second-quarter growth,
although the strength is likely influenced by the home buyers
tax credit and may fade in coming months.”

Both new home and nonresidential construction were a drag
on first-quarter growth.

Home construction activity picked up in recent months in
response to a popular tax credit which required prospective
home buyers to sign contracts by April 30 and close them by
June 30. A lull is expected in the months ahead.

Private non-residential spending saw its largest increase
since September 2008 and investment in public construction was
the biggest in 14 months. Spending on state and local
government construction projects was the fastest in just over a
a year. Federal spending on construction projects increased for
a fourth month in April.

Stock Market Report

(Additional reporting by Alister Bell in Washington and Steven
C. Johnson in New York)

WRAPUP 3-US manufacturing, construction data boost growth view