Economy Shows Signs of Bouncing Back, Latest Data Show

The number of new U.S. jobs climbed by an unexpectedly brisk 157,000 in May, while factory
activity improved and consumers remained upbeat, according to data Friday which suggested the economy was bouncing back.

The May payrolls rise came on a surge of hiring by service businesses and handily outstripped estimates for 130,000 jobs from Wall Street economists surveyed by Reuters, Labor
Department data showed.

A separate report from the Commerce Department showed that core consumer prices -- a key inflation measure -- rose a smaller-than-expected 0.1% in April, suggesting that inflation pressures remained in check, despite signs of economic resilience after a soft patch in the first three months of the year.

"The breakdown is generally healthy, employment is strong and construction is decent enough too," Alan Ruskin, chief international strategist with Greenwich Capital in Greenwich,
Connecticut, said of the jobs data.

"I think it's all consistent with the idea that the downside risks on the economy are abating and it continues to undercut expectations for rate cuts this year and early next year," he added.

Consumer Sentiment

Most of the economic news was upbeat, including a Reuters/University of Michigan survey that showed consumers were keeping their spirits up despite soaring gasoline prices. Its final May reading on consumer sentiment gained to 88.3 from 87.1 at the end of April, showing optimism about the future.

Another report from the Institute for Supply Management said factory managers began restocking depleted inventories in May, which helped nudge its index of national factory activity up to 55.0 from 54.7 in April.

The reports of robust jobs and strengthening factory activity sent bond prices lower as investors bet they meant reduced chances for cuts in official interest rates. But stocks
were higher on hopes for higher corporate profits if the economy gets a lift from free-spending consumers.

The only sour note came from the National Association of Realtors, which said its Pending Home Sales Index that is based on contracts signed in April dropped 3.2 percent to 101.4 from
a revised 104.8 in March. It underlined the well-known woes facing the struggling housing sector.

The Commerce Department's report showed the personal consumption expenditures price index, excluding food and energy--a core inflation gauge favored by the Federal Reserve--rose 2% on a year-over-year basis. It was the smallest rise in more than a year, bringing it within the 1% to 2% range many Fed officials wanted to see.

The jobs report showed the unemployment rate unchanged in May from April's 4.5%. The department revised its April figures to show that 80,000 jobs were created instead of the
88,000 it reported a month ago.

Very Strong Reports

"Overall very strong reports and in terms of the PCE number, inflation looks a little more moderate but spending is very strong," said Camilla Sutton, a currency strategist with
Scotia Capital in Toronto.

The Commerce Department report showed consumer spending jumped 0.5% in April despite the fact that incomes fell 0.1%.

All the new May jobs came in service-producing industries, which produced 176,000 more jobs while 19,000 were lost from the goods-producing sector. Among service businesses, there was
healthy job growth in financial activities, business services, education, the hospitality industry and in government.

And while the ISM survey showed factory activity rising in May, the jobs report said 19,000 jobs were shed by manufacturing businesses that month. There was no job growth at
all in construction industries.

Average hours of work rose slightly to 33.9 from 33.8 in April, though overtime hours fell slightly to 4.1 in May from 4.2 in April.

Federal Reserve Governor Randall Kroszner in a speech delivered on Friday in Greece, said the U.S. central bank expected a rebound in growth after a weak first quarter and said policy-makers were wary about inflation risks.

"The high level of resource utilization continues to have the potential to put additional upward pressure on inflation," Kroszner told the Institute of International Finance.