US factory orders, auto sales buoy growth outlook

Data adds to bullish employment and other manufacturing data

New orders for US-made factory goods rose for a third straight month in April and automakers reported robust vehicle sales in May, boosting the outlook for second-quarter economic growth.

Tuesday's reports added to bullish employment and other manufacturing data in suggesting the economy has rebounded smartly from the first quarter's weather-induced slump.

"This is consistent with other data showing growth bouncing back in the second quarter. Everything looks set for solid growth in the second half of this year," said Gus Faucher, senior economist at PNC Financial Services Group.

Factory orders increased 0.7% after an upwardly revised 1.5% advance in March, the Commerce Department said. March's orders had previously been reported as having risen 0.9%.

Excluding the volatile transportation category, orders rose 0.5%, the third straight monthly gain.

Surprisingly strong US sales from automakers in May bolstered the upbeat view on the factory sector and suggested manufacturing was poised for further growth.

Auto sales surged 11.4% from a year earlier to a seasonally adjusted annual 16.77 million unit rate, the strongest pace since February 2007, according to research firm Autodata.

General Motors Co and Chrysler Group said May sales were the best for that month in seven years. Nissan Motor Co set a sales record for May and Hyundai Motor Co had its best month ever. 

STUNNING NUMBERS

"These are stunning numbers, especially since the industry is in the midst of some massive, highly publicized recalls," said Anthony Karydakis, chief economic strategist at Miller Tabak in New York.

"We would view this as a strong sign of a consumer sector emerging more confident with pivotal positive implications for spending and growth later in the year."

The economy should also get a lift as businesses rebuild inventories after hunkering down in the first quarter to work through piles of stocks accumulated late last year.

Factory inventories rose 0.4% in April.

The rise in inventories and the jump in auto sales prompted Barclays to raise its estimate of second-quarter US growth by two-tenths of a percentage point to a 3.0% annual rate.

Forecasting firm Macroeconomic Advisers lifted its forecast to 3.9% from 3.8%, based on factory inventories, while Goldman Sachs upped its estimate by one-tenth to 3.8%. The US economy contracted at a 1.0% rate in the first quarter.

Unfilled orders recorded their largest gain since November, indicating factories will be busy in the months ahead, and shipments rose for a third consecutive month.