(Updates second-quarter GDP estimate, markets)
* Manufacturing activity rises in May
* Private payrolls jump by 253,000
* Weekly jobless claims increase by 13,000
By Lucia Mutikani
WASHINGTON, June 1 U.S. factory activity ticked
up in May after slowing for two straight months and private
employers stepped up hiring, suggesting the economy is regaining
speed after struggling at the start of the year.
The signs of renewed vigor in the economy and labor market
tightness could encourage the Federal Reserve to raise interest
rates later this month.
"The economy is moving forward at an acceptable pace and the
Fed is likely to hike rates in June, but there is a cloud over
the path of rates later on this year," said Chris Rupkey, chief
economist at MUFG in New York.
The Institute for Supply Management (ISM) said its index of
national factory activity ticked up to a reading of 54.9 last
month from 54.8 in April. The index hit a 2-1/2-year high of
57.7 in February amid optimism over President Donald Trump's
pro-business policy proposals.
It had declined for two consecutive months as concerns
mounted in the business community that political scandals could
derail the Trump administration's economic agenda, including its
push to cut corporate and individual taxes.
A reading above 50 in the ISM index indicates an expansion
in manufacturing, which accounts for about 12 percent of the
U.S. economy. The manufacturing recovery remains underpinned by
the energy sector as steady increases in crude oil prices boost
drilling activity, fueling demand for machinery.
The ISM survey's new orders sub-index increased to 59.5 last
month from 57.5 in April. A measure of factory employment jumped
to a reading of 53.5 from 52.0 in April. Manufacturers of food
and fabricated metals products reported difficulties finding
Manufacturers continued to steadily increase inventories and
still viewed their customers' stocks as too low, according to
the survey. While raw materials prices rose for a 15th straight
month, the pace of increase slowed sharply in May.
The upbeat economic data helped lift U.S. stocks, with each
of the major indexes hitting record highs. The dollar rose
against a basket of currencies, while U.S. Treasury debt prices
The ADP National Employment Report showed private payrolls
increased by 253,000 jobs last month, beating economists'
expectations for a gain of 185,000 jobs. Private payrolls rose
by 174,000 jobs in April.
The ADP report is jointly developed with Moody's Analytics
and was released ahead of the Labor Department's more
comprehensive nonfarm payrolls report on Friday, which includes
both public and private-sector employment.
The ADP report, however, is not a good predictor of the
private payrolls component of the employment report.
According to a Reuters survey of economists, payrolls likely
increased by 185,000 jobs in May after a gain of 211,000 in
April. The unemployment rate is forecast to be unchanged at a
10-year low of 4.4 percent.
Still, the ADP report added to data this week showing an
acceleration in consumer spending in April.
The economy grew at a 1.2 percent annualized rate in the
first quarter. The Atlanta Fed is forecasting gross domestic
product increasing at a 4.0 percent pace in the second quarter.
Minutes of the Fed's May 2-3 policy meeting, which were
published last week, showed that while policymakers agreed they
should hold off hiking rates until there was evidence the growth
slowdown was transitory, "most participants" believed "it would
soon be appropriate" to raise borrowing costs.
The U.S. central bank hiked rates by 25 basis points in
March. It is expected to do so again at its June 13-14 policy
In a third report on Thursday, the Labor Department said
initial claims for state unemployment benefits jumped 13,000 to
a seasonally adjusted 248,000 for the week ended May 27.
It was the 117th straight week that claims were below
300,000, a threshold associated with a healthy labor market.
That is the longest such stretch since 1970, when the labor
market was smaller.
A Labor Department official said claims for California and
seven other states were estimated because of the Memorial Day
holiday on Monday, which could have distorted the data.
The four-week moving average of claims, considered a better
measure of labor market trends as it irons out week-to-week
volatility, rose only 2,500 to 238,000 last week.
"While the claims report put a damper on what has been a
pretty upbeat run for most of the recent labor market data, we
still have a fairly favorable view of labor market conditions,"
said Daniel Silver, an economist at JPMorgan in New York.
The Fed said on Wednesday in its Beige Book report of
anecdotal information on business activity collected from
contacts nationwide that labor markets continued to tighten from
early April through late May.
It also said "most" districts had cited worker shortages
across a broadening range of occupations and regions.
A fourth report by global outplacement consultancy
Challenger, Gray & Christmas showed layoffs announced by
U.S.-based employers surged 41 percent to 51,692 in May. Nearly
40 percent of the job cuts were announced by Ford Motor Co
, according to the report.
(Reporting by Lucia Mutikani; Additional reporting by Dan Burns
in New York; Editing by Paul Simao and Andrea Ricci)