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Manufacturing increases, but with fewer workers, report finds

| Tuesday, July 2, 2013, 12:01 a.m.

WASHINGTON — Manufacturing activity grew in June behind a pickup in new orders, exports and production. Better economic growth overseas is boosting exports and could help American factories rebound in the second half of the year.

The Institute for Supply Management said on Monday that its index of factory activity increased to 50.9 in June. That's up from 49 in May, which was the lowest reading in four years.

A reading above 50 suggests growth and below 50 indicates contraction.

A measure of export orders jumped to 54.5 from 51. That may be a response to growth in Japan and some European countries, economists said.

Still, a measure of manufacturing employment fell in June to 48.7, its lowest level since September 2009. That suggests Friday's June employment report will show factories cut jobs for the fourth straight month.

The mostly positive manufacturing survey contributed to strong gains on Wall Street and followed a pair of upbeat reports of factory growth overseas. The Dow Jones industrial average closed up by 65 points, while broader stock indexes also gained.

Domestic manufacturing, which provided crucial support to the economy for the first three years since the recession ended in June 2009, slowed this year. Europe's slump has weighed heavily on U.S. exports. And businesses cut back on their investment in machinery and equipment in the first quarter.

“The ISM rebound suggested the worst may be past for the global trade slowdown that has contributed to a significant recent soft patch in U.S. manufacturing,” Ted Wieseman, an economist at Morgan Stanley, said in a note to clients.

A report in Europe showed improvement in manufacturing activity in Britain, France and Italy and stabilization in Spain.

Large manufacturers in Japan reported a positive outlook for the first time in nearly two years. The quarterly “tankan” survey showed that the outlook for services firms increased. The stronger readings indicate that businesses are pleased with Prime Minister Shinzo Abe's efforts to revive the nation's stagnant economy.

Still, China's manufacturing sector weakened in June, according to two surveys. Factories there were hurt by falling orders from the United States and Europe and by Chinese regulators' efforts to slow lending.

Paul Dales, an economist at Capital Economics, says the growth at American factories suggests the economy is improving enough for the Federal Reserve to slow its monthly bond purchases as soon as September.

A bigger test will come Friday when the June jobs report is released, Dales added.

There have been other signs recently that manufacturers could be starting to recover.

Businesses stepped up orders for factory goods in April and May. A category of orders that's viewed as a proxy for business investment plans — which excludes the volatile areas of transportation and defense — rose 1.1 percent in May, the third straight gain.

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