US manufacturing shows positive signs of recovery

US manufacturing mustered its highest level of activity in nearly a year in June, according to latest financial reports.

Some parts of the economy are showing signs that the 18-month-old recession, the most protracted in decades, may soon end, but job losses are seen accumulating long after economic growth resumes.

"Even though the economy is starting to show signs of being about to turn, that's not the case for the labor market," said Nigel Gault, chief US economist at IHS Global Insight in Lexington, Massachusetts. "The labor market is still getting worse, but it's getting worse more slowly."

US private employers slashed a bigger-than-expected 473,000 jobs in June, according to a recent report from ADP Employer Services.

However, the ADP report showed the pace of private job losses slowed from the 485,000 lost in May. Since the labor market typically continues to deteriorate even after recessions end, the report left optimists' hopes intact that a feeble economic revival is around the corner.

Both the manufacturing data and a recent report on pending home sales show that "the recovery is on its way," said John Forelli, portfolio manager at Independence Investments LLC in Boston.

US manufacturing shrank in June but at a slower pace than in May. The Institute for Supply Management said its index of national factory activity edged up to 44.8, the highest reading since last August and above economists' median forecast of 44.5. A reading below 50 indicates contraction.

It will probably take another three months for manufacturing to get back into growth territory, said Norbert Ore, chairman of the Institute for Supply Management's manufacturing business survey committee.

And an index of ending sales of previously owned US homes, which measures homes which are under contract to be sold, edged up 0.1 percent in May, for the fourth straight monthly gain, a real estate trade group reported.

"These are steps in the right direction" but "investors must remain patient before receiving very positive news," Forelli said.

Chicago Federal Reserve President Charles Evans says he expects the US economy to grow in the second half of this year and was looking for growth of 2.5 to 3 per cent next year.