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U.S. factory orders, auto sales buoy growth outlook

Workers assemble a wing for the Boeing 737-900 at their operations in Renton, Washington, October 18, 2012. REUTERS/Andy Clark

By Lucia Mutikani

WASHINGTON (Reuters) - New orders for U.S.-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 percent after an upwardly revised 1.5 percent advance in March, the Commerce Department said. March's orders had previously been reported as having risen 0.9 percent.

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

Surprisingly strong U.S. 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 percent 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 (GM.N) and Chrysler Group (FIA.MI) said May sales were the best for that month in seven years. Nissan Motor Co <7201.T> set a sales record for May and Hyundai Motor Co <005380.KS> had its best month ever.


"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 percent in April.

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

Forecasting firm Macroeconomic Advisers lifted its forecast to 3.9 percent from 3.8 percent, based on factory inventories, while Goldman Sachs upped its estimate by one-tenth to 3.8 percent. The U.S. economy contracted at a 1.0 percent 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.

(Reporting by Lucia Mutikani; Editing by Andrea Ricci and James Dalgleish)