Business barometer rises in June, but initial jobless claims remain stuck above 400,000

Factory activity in the Midwest accelerated in June, fostering hopes for a pickup in economic growth in the third quarter, despite signs of lingering weakness in the labor market.

The Institute for Supply Management-Chicago said Thursday that its business barometer rose to 61.1 after slowing abruptly to 56.6 in May. The gain defied economists’ expectations for a drop to 54.

The sturdy factory activity in the automotive-heavy region snapped a string of weak regional manufacturing surveys and raised optimism that the economy may start to emerge from the soft patch it hit in the first half of the year.

“This may be an indication that we are at least at the bottom of this slowdown, not only in manufacturing but also economic,� said Millan Mulraine, senior Macro Strategist at TD Securities in New York. “In the months ahead we are likely to see a resurgence in growth.�

But optimism was tempered somewhat by a separate report from the Labor Department showing that initial claims for state unemployment benefits slipped just 1,000 to 428,000 last week. Economists had expected claims to drop to 420,000.

It was the 12th straight week that claims have been above 400,000, a sign that the labor market has stagnated. Employment stumbled badly in May, with employers adding just 54,000 jobs — the fewest in eight months.

The economy has been slammed by high gasoline prices and supply chain disruptions in the auto sector after the March earthquake in Japan.

Many economists and the Federal Reserve, which ended its latest round of monetary stimulus Thursday, have maintained that the obstacles to growth in the first six months of the year were temporary.

Some analysts had begun to speculate the Fed might be required to offer further stimulus given signs of economic weakness, but Thursday’s data suggested its forecast was on track.

The brightening manufacturing picture was also enhanced by a Kansas City Fed survey that showed factory production in its region rebounded strongly this month after slumping in May.

The bullish reports raised the possibility that Friday’s Institute for Supply Management survey for June could show unexpected strength. National factory activity had been expected to cool.