"I think you have a situation where the economy is growing fast enough to placate market participants but not so quickly to bring the Fed in," said Ben Pace, chief investment officer at HPM Partners.
Stocks held to a trading range in choppy trade Monday. "We have a lot of data giving somewhat conflicting stories," said Ben Garber, capital markets economist at Moody's Analytics. He noted the counter effect of continued weakness in consumer spending.
There are "concerns that the economy is not bouncing back as much in the second quarter as people expected," he said.
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The Institute for Supply Management (ISM) said its index of national factory activity was 52.8 in May, up from April's reading of 51.5, which had tied with March's reading as the lowest since May 2013.
Construction spending for April increased 2.2 percent, the highest level in nearly six-and-a-half years.
The May manufacturing PMI index came in at 54.0, slightly above the initial read of 53.8 and little changed from April's 54.1 report.
Peter Cardillo, chief market economist at Rockwell Global Capital, highlighted the improvements in housing and manufacturing data.
"Two important sectors of the economy continue to shine," he said. "The economy seems to be headed for recovery in his quarter—modest growth."
The Atlanta Fed's GDP Now forecast remained unchanged from May 26 at 0.8 percent after the morning's data. The forecast for real consumption growth fell to 2.1 percent from 2.6 percent.
Futures held gains after personal income increased 0.4 percent in April. Consumer spending was unchanged from the prior month.
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"The sweet spot for the market is something similar to what we saw today—growth is picking up but not going to stoke inflation," said Jeremy Zirin, head CIO investment strategist at UBS Wealth Management Americas.
The U.S. 10-year yield gained to 2.19 percent, while the 2-year yield traded near 0.64 percent. The U.S. dollar traded half a percent higher with the euro below $1.10.
Monday's economic reports kick off a week of data. ISM non-manufacturing is expected Wednesday, while Friday brings the key nonfarm payrolls report.
"I think investors are treading very cautiously on the market here because there's a lot of conflict in the economic data," said Mark Luschini, chief investment strategist at Janney Montgomery Scott.
Housing reports have been mostly encouraging, while the overall economy still struggles to show robust growth.
"The market is concerned that if the economy can't grow with rates at zero, then when will it grow?" said Adam Sarhan, CEO of Sarhan Capital. He said Monday's better-than-expected reports still show an economy below robust levels.
Stocks briefly rose in the open following morning remarks from Federal Reserve policymakers.
Financial regulators need to be on guard against the threat of future financial crises, particularly as banks boost pressure to roll back rules designed to shore up the financial system, Fed Vice Chairman Stanley Fischer said at the International Monetary Conference in Toronto. He added that it is unclear if we're in secular stagnation, and warned against complacency bred from financial stability.
Separately, Boston Fed President Eric Rosengren said Monday that he would like to begin raising rates as soon as possible, but risks from the slowdown in China and Europe in particular loom large even as growth at home is still not strong enough.
European stocks closed mixed on weaker-than-expected factory growth amid strength in health care stocks. The Shanghai Composite surged following a slight improvement in China's PMI reports.
U.S. equities posted gains for May despite closing lower on Friday.
Investors continue to eye Greece, which faces a June 5 deadline for a payment to the International Monetary Fund.
European Central Bank President Mario Draghi and IMF chief Christine Lagarde will join the leaders of Germany, France, and the European Commission for talks on Monday evening in Berlin on Greece, European Union officials said.
The Dow Jones Industrial Average closed up 29.69 points, or 0.16 percent, at 18,040.37, with DuPont leading advancers and Intel the greatest laggard.
The S&P 500 closed up 4.35 points, or 0.21 percent, at 2,111.73, with industrials leading eight sectors higher and energy and telecommunications the only decliners.
The Nasdaq closed up 12.9 points, or 0.25 percent, at 5,082.93.
The CBOE Volatility Index (VIX), widely considered the best gauge of fear in the market, traded just below 14.
About eight stocks advanced for every seven decliners on the New York Stock Exchange, with an exchange volume of 680 million and a composite volume of nearly 3 billion in the close.
Crude oil futures for July delivery settled down 10 cents at $60.20 a barrel on the New York Mercantile Exchange. Gold futures for August delivery settled down $1.10 to $1,188.70 an ounce.