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Consumer and factory data signal steady economy

Customers fill their tanks with gasoline at an automobile service station as prices are displayed on a signboard in San Bruno, California Fe
Customers fill their tanks with gasoline at an automobile service station as prices are displayed on a signboard in San Bruno, California Fe

By Lucia Mutikani

WASHINGTON (Reuters) - Consumer sentiment edged off a six-year high in June while manufacturing output picked up a bit last month after two straight months of declines, suggesting the economy remains on a moderate growth path.

While other data on Friday showed wholesale prices jumped in May as gasoline and food prices rebounded, underlying inflation pressures were muted.

The reports come ahead of a Federal Reserve meeting next week where policymakers will discuss whether and when to start scaling back their $85 billion a month pace of bond buying.

Though the economy is showing resilience in the face of tighter fiscal policy in Washington, the pace of growth is unspectacular and inflation is well below the central bank's 2 percent target.

"The Fed is likely to maintain its current pace of securities purchases until later in the fall. There is no sign of inflation and growth is still moderate," said Gus Faucher, senior economist at PNC Financial Services Group in Pittsburgh.

The Thomson Reuters/University of Michigan's preliminary index on consumer sentiment fell to 82.7 in June after touching a near six-year high of 84.5 in May.

June's reading was the second highest in the last eight months, suggesting Americans were far from gloomy about their long-term prospects.

"The proximity of the headline index to cycle highs continues to suggest that consumer attitudes remain positive, a likely positive factor for future consumer spending," said Gennadiy Goldberg, an economist at TD Securities in New York.

DOMESTIC DEMAND HELPING FACTORIES

While households appear to be weathering tighter fiscal policy, helped in part by rising home prices, the factory sector has taken a beating from spending cuts. It has also suffered from a recession in Europe that is weighing on global growth.

In a separate report, the Fed said factory output edged up 0.1 percent last month after two back-to-back declines. Overall industrial production was unchanged, held back by a big drop in utilities output.

"The slight improvement in May suggests improving domestic demand is helping offset the negative impact on exports of recent softening in overseas demand," said Ted Wieseman, an economist at Morgan Stanley in New York.

Separately, the Labor Department said the producer price index, a gauge of prices received by the nation's farms, factories and refineries, rose 0.5 percent in May after declining 0.7 percent in April.

Excluding volatile food and energy costs, however, wholesale ticked up only 0.1 percent for a second straight month.

In the 12 months through May, this so-called core PPI advanced 1.7 percent, the same as in April and March. The overall PPI was also up 1.7 percent after rising 0.6 percent in the period through April.

U.S. financial markets were little moved by the reports, with attention shifting to the Fed's meeting on Tuesday and Wednesday. Stocks on Wall Street were trading lower, while prices for U.S. government debt rose. The dollar was little changed against a basket of currencies.

Wholesale gasoline prices increased 1.5 percent last after dropping 6.0 percent in April, boosting energy prices. Energy prices accounted for more than 60 percent of the rise in PPI last month.

A record jump in egg prices pushed up food prices by 0.6 percent. The cost of food had dropped 0.8 percent in April. Egg prices accounted for 60 percent of the rise in the wholesale food index last month.

An increase in light truck prices accounted for almost two-thirds of the rise in core PPI in May.

"Producers are complaining that they have been unable to pass any increases in energy or food prices along to consumers," said Diane Swonk, chief economist at Mesirow Financial in Chicago. "The result is an inflation rate that falls short of a healthy buffer zone for the overall economy."

(Reporting by Lucia Mutikani, Additional reporting by Paige Gance in Washington and Leah Schnurr in New York; Editing by Andrea Ricci, Tim Ahmann and Chizu Nomiyama)

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