U.S. jobs data signals hurdles amid factory glimmer

By John Parry

NEW YORK (Reuters) - U.S. manufacturing mustered its highest level of activity in nearly a year in June but surprising weakness in private sector employment signalled how feeble an economic recovery might be, reports released on Wednesday showed.

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 labour market," said Nigel Gault, chief U.S. economist at IHS Global Insight in Lexington, Massachusetts. "The labour market is still getting worse, but it's getting worse more slowly."

U.S. private employers slashed a bigger-than-expected 473,000 jobs in June, according to a report from ADP Employer Services, released a day before the closely watched U.S. government nonfarm payrolls report is due out.

However, the ADP report showed the pace of private job losses slowed from the 485,000 lost in May. Since the labour 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 report on pending home sales also released on Wednesday show that "the recovery is on its way," said John Forelli, portfolio manager at Independence Investments LLC in Boston.

U.S. 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.