Strong factory orders, auto sales brighten U.S. economic picture

WASHINGTON (Reuters) - New orders for U.S. factory goods posted a record gain in July and auto sales last month appeared to increase at their fastest annualized pace since early 2006, offering further bullish signals for the economy.

Another report on Wednesday from the Federal Reserve showed manufacturing expanding across a broad base of sectors and auto sales hitting "high levels" in recent weeks.

"U.S. economic activity continues to improve," said Jennifer Lee, a senior economist at BMO Capital Markets in Toronto.

The Commerce Department said new orders for manufactured goods jumped 10.5 percent in July on robust demand for aircraft and autos, compared to a 1.5 percent rise in June.

Orders excluding the volatile transportation category slipped 0.8 percent in July, but that drop followed a 1.4 percent increase the prior month, leaving intact the upbeat trend for manufacturing activity.

Separate reports from automakers showed sales coming in unexpectedly strong in August, with Morgan Stanley estimating they would reach a seasonally adjusted annual rate of 17.3 million units.

That would beat Wall Street's expectations for a 16.6 million-unit pace and would be the highest level since January 2006.

Ford Motor Co saw a 0.4 percent increase in sales, while Chrysler Group - a unit of Fiat SpA - reported a 20 percent surge. General Motors Co , however, said its sales declined 1.2 percent.

Manufacturing is accelerating, with the Institute for Supply Management reporting on Tuesday that its gauge of factory activity hit its highest level in nearly 3-1/2 years in August. In addition, a measure of new orders touched a 10-year high.

BUSINESS SPENDING RISING

Economists say the acceleration in factory activity suggested a pickup in business spending on capital goods and supported their forecasts for sturdy growth in the third quarter.

Growth estimates for the July-September period range as high as a 3.5 percent annual pace. The economy expanded at a 4.2 percent rate in the second quarter.

Separately, the Fed's Beige Book found economic activity continued to expand in recent weeks. It said manufacturing was growing broadly, with auto production boosting demand for steel and other related products.

U.S. financial markets were largely unmoved by the data as investors focused on the conflict in eastern Ukraine.

Orders for transportation equipment soared a record 74.1 percent in July, reflecting outsized civilian aircraft orders received by Boeing that was flagged in the durable goods orders report published last week.

Auto orders rose 7.3 percent, the largest increase since March 2011, and capital goods orders surged a record 52.5 percent. But orders for primary metals, machinery, computers and electrical equipment, appliances and components fell.

Unfilled orders at factories recorded their largest rise in 14 years, while inventories remained lean, both positive signs for the sector in the near-term.

(Reporting by Lucia Mutikani; Additional reporting by Bernie Woodall and Ben Klayman in Detroit and Michael Flaherty in Washington; Editing by Paul Simao)