Sturdy U.S. manufacturing data bolster growth outlook

By Lucia Mutikani

WASHINGTON (Reuters) - U.S. manufacturing output rose in May and factory activity in New York state accelerated sharply this month, buoying hopes of a strong rebound in economic growth this quarter.

The brightening growth outlook was further boosted by news on Monday that confidence among homebuilders perked up this month, a good omen for the struggling housing market.

"Today's figures are evidence of a strengthening recovery of the economy. Things are really hopping out there," said Chris Rupkey, chief financial economist at Bank of Tokyo-Mitsubishi UFJ in New York.

Factory production increased 0.6 percent last month as output rose across a swath of industries, the Federal Reserve said on Monday. It also said output had slipped 0.1 percent in April, not as deeply as it had previously thought.

Separately, the New York Federal Reserve said its "Empire State" general business conditions index rose to 19.28 this month, the highest reading since June 2010, from 19.01 in May. Readings above zero indicate growth.

Factory orders in the state hit a four-year high and inventories increased significantly, indicating that restocking will contribute to growth this quarter after weighing heavily on the economy in the first three months of the year.

Although job growth at New York factories slowed, employees worked longer hours.

The reports added to employment and services industries data in suggesting the economy was bouncing back strongly after contracting at a 1.0 percent annual pace in the first quarter.

Growth estimates for April-June quarter range as high as a 4 percent rate.

HOMEBUILDER MOOD IMPROVES

Federal Reserve officials meeting on Tuesday and Wednesday to assess the economy and deliberate on monetary policy are likely to view the fairly upbeat reports as confirmation of underlying strength in the economy.

The Fed is expected to announce a further cut to its monthly bond purchasing program, but is not seen raising interest rates until mid-2015.

Another report showed the National Association of Home Builders/Wells Fargo index of homebuilder confidence rose four points to 49 in June, just shy of the threshold that would be considered favourable for building conditions.

The improving sentiment bodes well for the housing recovery, which stalled last year after a run-up in mortgage rates.

Manufacturing output in May was led by a 1.5 percent jump in motor vehicle production. There were also gains in the output of machinery, computer and electronic products, electrical equipment and appliances, and fabricated metal products. Production of primary metals, however, slipped.

"Strength in this sector is a foundation for future growth," said Jay Morelock, an economist at FTN Financial in New York.

Mining output rose 1.3 percent in May, but utilities production fell 0.8 percent, a fourth straight monthly drop.

Overall industrial production rose 0.6 percent after declining 0.3 percent in April.

The amount of manufacturing capacity in use rose to 77.0 percent last month, the highest level since March 2008, from 76.7 percent in April.

(Reporting by Lucia Mutikani, additional reporting by Ryan Vlastelica in New York; Editing by Paul Simao)