Factory orders surprise with gain, service index with fall

WASHINGTON -- Economists got a good and bad surprise Wednesday as the nation's economy lurches toward recovery.

• Factory orders rose in June for the fourth time in five months, an unexpected gain and the latest sign that the ailing manufacturing sector is recovering.

• But the Institute for Supply Management's measure of the health of the U.S. services sector contracted more sharply than expected in July.

The Commerce Department said factory orders rose 0.4%, after a 1.1% increase in May. Economists expected a 1% drop, according to a survey by Thomson Reuters.

A 2.7% rise in orders for non-durable goods, such as chemicals and textiles, was the most since June 2008 and drove the overall increase. Orders for petroleum and coal products jumped 13.2%, as the price of oil rose.

Orders for durable goods, big-ticket items such as aircraft and appliances, fell 2.2%.

Excluding transportation items, factory orders surged 2.3% in June from May's 0.9% advance. Shipments of manufactured goods rebounded 1.4% in June, breaking 10 straight months of declines, the department said. Shipments fell 0.8% in May.

Inventories of manufactured goods fell 0.8% in June after dropping a matching 0.8% in May.

The ISM services index clocked in at 46.4, down from 47 in June. It's the 10th straight month of decline as any reading below 50 indicates the sector is shrinking.

Analysts had expected a reading of 48 in July, according to poll by Thomson Reuters.

The ISM says the service industries included in its survey, including retailers, financial services, transportation and health care, make up more than 80% of the United States' economic activity. Any turnaround in the sector requires improved consumer spending.

Contributing: Reuters