WRAPUP 6-US factories shine, job market weakness lingers

* Initial jobless claims surge in post Easter volatility

* Mid-Atlantic factory activity highest in four months

* New York state manufacturing at six-month high

* Industrial output edges up, manufacturing surges

(Adds Goldman Sachs raising Q3 growth forecasts)

By Lucia Mutikani and Caroline Valetkevitch

WASHINGTON/NEW YORK, April 15 (BestGrowthStock) – U.S.
manufacturers were busy in April as factories ramped up
production to rebuild inventories though soft labor markets
still point to a relatively slow economic recovery.

Data on Thursday indicated manufacturing may continue
leading growth for a while. Analysts said recovery should then
shift from government stimulus and stockpiling to consumers
once hiring picks up in the factory sector.

“With the manufacturing sector accelerating, it’s likely
the overall economy will continue to grow at an above trend
growth for the time being,” said Zach Pandl, an economist at
Nomura Securities International in New York. “The handoff from
fiscal policy to underlying domestic growth should happen at
some point this year.”

Expansion in manufacturing was highlighted by the New York
Federal Reserve’s “Empire State” general business conditions
index which rose to a six-month high of 31.86 in April from
22.86 last month. Markets had expected a reading of 24.

Separately, the Philadelphia Federal Reserve Bank’s
business activity index rose to the highest level in four
months during April. The rise in the index to 20.2 from 18.9
the prior month was a touch above market expectations.

A report from the Federal Reserve showed overall industrial
production rose only 0.1 percent in March as heating needs
fell, manufacturing output increased 0.9 percent led by
widespread gains among durable goods industries.

The strong manufacturing data prompted Goldman Sachs to
raise its forecast for second quarter gross domestic product
growth to an annual rate of 3 percent from a 2 percent pace.

“Although our 2.5 percent estimate for annualized
first-quarter real GDP growth still looks right, the U.S.
economy appears to be headed for stronger growth in the second
quarter,” said Edward McKelvey, an economist with the bank.

But there was still plenty of slack in the labor market.
Initial claims for state unemployment benefits rose 24,000 to a
seasonally adjusted 484,000 last week. A Labor Department
official attributed the spike to a backlog in applications from
the Easter holiday and saw no unusual economic factors.

U.S. stocks (Read more about the stock market today. ) posted their sixth straight day of gains as an
upbeat profit forecast from United Parcel Service (UPS.N: )
pushed up transportation shares and offset concerns about the
rise in jobless claims. U.S. Treasury debt prices rose, while
the U.S. dollar was up versus the euro and yen.

MANUFACTURING ROBUST

“Clearly the factory sector is enjoying a robust
turnaround, driven by inventory rebuilding at home and strong
final demand abroad,” said Paul Ashworth, senior U.S. economist
at Capital Economics in Toronto.

In a sign of strengthening demand overseas, China recorded
surprisingly strong annual growth of 11.9 percent in the first
quarter. The rate of expansion was the fastest since 2007.
See [ID:nTOE63D091]

Although applications for jobless benefits surged last
week, they were unlikely to derail the nascent jobs recovery,
analysts said. Signs of the improving labor market tone were
also evident in the New York Fed survey, where the employment
index jumped to a four-year high in April.

Labor market sluggishness has raised doubts about the
durability of the economy’s recovery from its worst downturn in
70 years. Firming domestic demand is reducing some of the
skepticism, however.

“We are going to see improvement in jobs even though we saw
a jump in jobless claims earlier today. Other indicators show
the labor market is improving,” said Nigel Gault, chief U.S.
economist at IHS Global Insight in Lexington, Massachusetts.

President Obama’s popularity has taken a hit along with
that of fellow Democrats given growing public impatience over
slow economic recovery and high unemployment. This is
threatening the Democratic Party’s prospects in the November
congressional elections.

Retail sales surged in March, government data showed on
Wednesday, and businesses have started rebuilding inventories.

Atlanta Federal Reserve Bank President Dennis Lockhart said
on Thursday while the economy was doing much better, it still
needs the “strong medicine” of low interest rates to deal with
problems in housing an commercial real estate. [ID:nWALFFE625]

Resource usage, one of the factors being watched by the
U.S. central bank to determine when to lift interest rates from
near zero, edged up in March. Capacity utilization edged up to
73.2 percent from 73.0. It was still 7.4 percentage points
below the 1972-2009 average.

Labor market woes continue to cause problems as a growing
number of homeowners struggle to pay mortgages.

U.S. home foreclosures jumped 19 percent to a monthly
record in March, driving first-quarter actions up 7 percent
from the prior quarter, RealtyTrac said late on Thursday. See
[ID:nNYS007912]

But there was a ray of hope for the troubled housing
market. Home-builder sentiment rose to a seven-month high this
month as consumers rushed to take advantage of the home buyer
tax credit. An improving economic picture also helped to lift
confidence. See [ID:nWALFFE624]

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GRAPHICS:

U.S. jobless claims: http://link.reuters.com/raq87j

U.S. capacity utilization: http://link.reuters.com/bat87j

U.S. east coast economy: http://link.reuters.com/tav87j

U.S. home builder sentiment: ttp://link.reuters.com/qez87j

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Investment Basics

(Writing by Lucia Mutikani; Additional reporting by Emily
Kaiser in Washington, John Parry, Wanfeng Zhou and Richard
Leong in New York; Editing by Andrew Hay)

WRAPUP 6-US factories shine, job market weakness lingers