U.S. Manufacturing-Sector Activity Accelerated in June -- 2nd Update

The strongest reading on U.S. factory activity in nearly three years signaled underlying health in the economy headed into the second half of 2017.

The Institute for Supply Management on Monday said its index of U.S. manufacturing activity rose to 57.8 in June, its highest level since August 2014. A number above 50 indicates expansion; economists had expected a more modest rise from May's 54.9.

The closely watched gauge is now just above its level early this year, when it and other survey-based economic indicators had jumped following the 2016 presidential election. This time, the solid reading is accompanied by evidence of a pickup in actual economic growth during the second quarter.

"The improvement across many of the sub-components seems to be consistent with what we've seen in the hard data for the domestic economy," said Michael Gapen, chief U.S. economist at Barclays. "I would tie it to more of a real improvement than expectations of big changes."

The index has signaled expansion in the manufacturing sector for 10 consecutive months, and the details of the latest report were broadly upbeat.

"It feels like everything is moving in the right direction," said Timothy Fiore, who oversees the ISM survey.

The new-orders index rose to 63.5 in June and the production index was up to 62.4. The employment index increased to 57.2. The index tracking new export orders rose to 59.5.

The prices index declined to 55.0, signaling slower growth in costs for raw materials. U.S. inflation has softened in recent months, though some top Federal Reserve officials have blamed one-time factors and said they expect low unemployment will push up wages and prices going forward.

Among 18 industries tracked in Monday's report, 15 reported growth during June while three reported contraction.

Manufacturing accounts for only about 12% of U.S. economic output, but the sector is closely watched for signals about the trajectory of the wider economy.

Falling oil prices, choppy growth overseas and a strong dollar all put stress in recent years on U.S. factories, which faced reduced demand from the energy industry and overseas customers. Industrial activity stabilized last year, though oil prices have moved lower in recent weeks.

Manufacturing production in May was up 1.4% from a year earlier, according to Fed. The Commerce Department last week said orders for durable goods, long-lasting products made by U.S. factories, rose 2.8% in the first five months of 2017 compared with a year earlier.

Broad U.S. economic growth appeared to accelerate this spring from the modest 1.4% growth pace for gross domestic product during the first three months of 2017. The Federal Reserve Bank of Atlanta's GDPNow model on Monday projected a 3.0% annual growth rate for the just-completed second quarter.

The Commerce Department will release its first official estimate for second-quarter GDP on July 28.

Write to Ben Leubsdorf at ben.leubsdorf@wsj.com

(END) Dow Jones Newswires

July 03, 2017 12:53 ET (16:53 GMT)