Home sales, manufacturing improve; construction still weak

WASHINGTON -- A batch of reports Wednesday reinforced a growing consensus for an improving if fitful economy, with analysts still expecting a modest recovery by year's end and moderating job losses in today's unemployment survey.

Manufacturing activity — an economic bellwether — declined but at the slowest pace since August as production grew, while new orders shrank, the Institute for Supply Management said.

"It's generally a step in the right direction," says John Canally, vice president and economist at LPL Financial.

The manufacturing index was 44.8, up from 42.8 in May, ISM said. Since bottoming in December, the index has risen six consecutive months. A reading above 50 means factory expansion; below 50 indicates contraction.

Production grew for the first time in 10 months. And inventories continued to dwindle, a sign that manufacturers will have to ratchet up production to replenish depleted stocks later this summer, says analyst Brian Bethune of IHS Global Insight. Other bright spots: The pace of industry job losses slowed substantially, while exports also fell less sharply.

Yet new orders, a barometer of future output, dipped after rising in May for the first time since November 2007.

In the broader economy, two reports on employment seem to herald easing job losses. Payroll processor ADP said U.S. employment fell by 473,000 in June, the fewest job losses in seven months but more than analysts' estimates. And announced layoffs fell to a 15-month low of 74,400 in June, 33% below May's total, according to outplacement company Challenger Gray and Christmas.

Economists expect today's government employment report to show 365,000 job cuts in June, pushing the jobless rate to 9.6% from 9.4%. That would slightly exceed April's 345,000 losses but halve the first-quarter average of 691,000 monthly cuts.

Meanwhile, construction spending fell 0.9% in May to a seasonally adjusted rate of $964 billion, the Census Bureau said.