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Factory orders rise in May

By Theresa Agovino Ap Business Writer 3 min read

NEW YORK (AP) – The huge discounts automakers offered on new cars last month did more than clear out dealers’ inventory – they helped boost activity in the nation’s service sector at a faster than expected pace. The Institute for Supply Management said Wednesday its index of business activity in the non-manufacturing sector rose to 62.2 in June from 58.5 in May, well above the 58.9 analysts expected. It was the 27th consecutive month of expansion in the sector.

A reading of 50 or above means the services’ sector economy is expanding, while a reading below 50 indicates a contraction.

Economists agreed the index bodes well for the June employment report due Friday from the Labor Department.

“June looks like it is going to be a blow out month all around,” said Mark Vitner, senior economist at Wachovia Securities. “There is real strength in consumer spending.”

Vitner said the impressive June sales figures posted by the automotive industry propelled activity in the non-manufacturing sector. Last week, General Motors Corp. said its sales soared 41 percent in June to their highest monthly total in nearly 19 years thanks to a heavily promoted discount that allowed customers to buy cars and trucks at the employee rate. Asian brands also continued their surge with Toyota Motor Corp., Honda Motor Co. and Nissan Motor Co. all posting their best June sales periods ever in the United States.

“General Motors is still an awfully big company and when its sales improve it has broad ranging implications,” Vitner said. Still, Vitner thinks higher energy prices will slow economic growth in the second half of the year.

Oil prices surging above $61 per barrel outweighed the positive impact of the non-manufacturing report, sending stocks lower.

In afternoon trading, the Dow Jones industrial average fell 38.35, or 0.4 percent, to 10,333.45 after rising 68 points on Tuesday.

Broader stock indicators were mixed. The Standard & Poor’s 500 index was down 3.05, or 0.3 percent, at 1,201.94, and the Nasdaq composite index rose 1.68, or 0.2 percent, to 2,082.45.

But Patrick Fearon, senior economist at A.G. Edwards & Sons Inc., said he doesn’t expect higher energy prices to stifle growth. He said the Institute report showed consumers are “getting over the energy shock.”

Moreover, Fearon said energy prices could decline in the second half of the year as petroleum production increases.

“The economy has showed so much resilience,” Fearon said.

Only two of the 14 industries tracked in the June study reported decreased activity from the prior month – health services and agriculture. Legal services reported the same rate of activity.

Employment activity increased in June while growth in new orders was lower than in May, the report said.

Prices increased at a higher rate than in May, indicating that recent jumps in energy costs are being felt by the non-manufacturing industries, according to a statement by the Tempe, Ariz.-based research group.

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