US manufacturing expanded further in July, fuelling more hiring, but outlays for US construction fell unexpectedly in June to hint at a slowing of the housing boom, reports released on Monday showed.
The Institute for Supply Management's national factory index, which rose to 62.0 in July from 61.1 in June, suggested that a "soft patch" in the US economy in June might have been the blip that Federal Reserve officials have suspected and not a change in direction. That should keep the central bank on track to continue raising interest rates.
US Treasury prices held early gains on Monday as the ISM survey, which landed in line with Wall Street forecasts, was not as strong as some dealers had expected.
The benchmark 10-year Treasury note yield was 4.46 percent versus 4.48 percent late Friday.
Treasury markets were also buoyed by safe-haven buying after US intelligence warnings of al Qaeda threats to attack financial institutions including the New York Stock Exchange and the World Bank in Washington.
The reported threats also hit stock prices and the dollar.
"Today's (ISM) report provides further verification of the strong state of US manufacturing," said Thomas Duesterberg, president of the Manufacturers Alliance/MAPI in Washington.
Second-half growth would be fuelled by strong business equipment investment, purchases of high technology durable goods and robust exports, he said.
"I'm not raising my expectations for the second half, but certainly July gets the second half off to a very strong start," said Norbert Ore, chairman of the ISM manufacturing business survey.
Any reading above 50 in the ISM index indicates growth. The index has been above 50 for 14 straight months and above 60 for the past nine months - the longest stretch since 1973-74.
Outlays for US construction fell in June by 0.3 percent, the first drop in 16 months, the Commerce Department said. Analysts had looked for no change from May levels.
May's spending was revised down to a 0.1 percent gain from a previously reported 0.3 percent advance.
The employment component of the ISM index slipped to 57.3 from 59.7 in June. Some analysts had feared a bigger drop after the Chicago purchasing managers' survey on Friday showed net job losses in the Midwest.
ISM's Ore said anecdotal evidence suggested the labour market was picking up steam. "There are a lot of signs out there for employment and rehires that haven't been there for quite a while," he said.
ISM's prices paid index eased to 77.0 from 81.0 as commodity prices fell back from recent highs. New orders, the engine behind potential hiring, rose to 64.7 from 60.0 in June. Inventories fell to 49.9 from 51.1.
The ISM index is compiled from monthly responses by purchasing executives at more than 400 industrial companies, ranging from textiles and chemicals to paper and computers.
The National Association of Realtors on Monday said rising home prices and interest rates had made US houses less affordable in the second quarter. Its affordability index fell to 133.6 from 144.1 in the first quarter and 143.8 a year ago.
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