U.S. manufacturers were busy in April as factories ramped up production to rebuild inventories though soft labor markets still point to a relatively slow-paced economic recovery.
Data on Thursday indicated manufacturing may continue leading growth for a while. Analysts said recovery should then shift from government stimulus and stockpiling to consumers once hiring picks up in the factory sector.
There is plenty of slack to be taken up on the jobs front.
Initial claims for state unemployment benefits rose 24,000 to a seasonally adjusted 484,000. A Labor Department official attributed the spike to a backlog in applications during the Easter holiday and saw no unusual economic factors at play.
With the manufacturing sector accelerating, it's likely the overall economy will continue to grow at an above trend growth for the time being, said Zach Pandl, an economist at Nomura Securities International in New York.
The handoff from fiscal policy to underlying domestic growth should happen at some point this year.
Expansion in manufacturing was highlighted by the New York Federal Reserve's Empire State general business conditions index which rose to a six-month high of 31.86 in April from 22.86 last month. Markets had expected a reading of 24.
Separately, the Philadelphia Federal Reserve Bank's business activity index rose to the highest level in four months during April. The rise in the index to 20.2 from 18.9 the prior month was a touch above market expectations.
While a report from the Federal Reserve showed overall industrial production rose only 0.1 percent in March as heating needs fell, manufacturing output increased 0.9 percent in March, led by widespread gains among durable goods industries.
U.S. stocks were little changed. An upbeat profit forecast from United Parcel Service
Clearly the factory sector is enjoying a robust turnaround, driven by inventory rebuilding at home and strong final demand abroad, said Paul Ashworth, senior U.S. economist at Capital Economics in Toronto.
In a sign of strengthening demand overseas, China recorded surprisingly strong annual growth of 11.9 percent in the first quarter. The rate of expansion was the fastest since 2007.
Although applications for jobless benefits surged last week, they were unlikely to derail the nascent jobs recovery, analysts said. Signs of the improving labor market tone were also evident in the New York Fed survey, where the employment index jumped to a four-year high in April.
Labor market sluggishness has raised doubts about the durability of the economy's recovery from its worst downturn in 70 years. Firming domestic demand is reducing some of the skepticism.
President Obama's popularity has taken a hit along with that of fellow Democrats given growing public impatience over the slow pace of the economic recovery.
Retail sales surged in March, government data showed on Wednesday, and businesses have started rebuilding inventories.
Now it looks like the recovery has broadened as we are seeing some improvement in consumer spending and business investment, said Nigel Gault, chief U.S. economist at IHS Global Insight in Waltham, Massachusetts.
But labor market woes continue to cause problems as a growing number of homeowners struggle to pay mortgages.
U.S. home foreclosures jumped 19 percent to a monthly record in March, driving first-quarter actions up 7 percent from the prior quarter, RealtyTrac said late on Thursday.
Utilities output fell in March as heating demand fell, slowing industrial production last month. Capacity utilization, a closely watched measure of slack in the economy, rose to 73.2 percent from 73.0. That was still 7.4 percentage points below the 1972-2009 average.
The Fed has listed resource usage among the factors it is monitoring to determine when the time is right to lift interest rates from near zero. Fed Chairman Ben Bernanke reiterated on Wednesday the central bank thought rates would stay abnormally low for an extended period.
(Writing by Lucia Mutikani; Additional reporting by Emily Kaiser in Washington, John Parry, Wanfeng Zhou and Richard Leong in New York; Editing by Andrew Hay)