America's factories saw orders grow by the largest amount in three months the government reported Thursday, an encouraging economic sign.

The Commerce Department said new bookings to the nation's manufacturing sector rose by 1.2 percent in June, the most since March. All the strength reflected demand for "durable" goods, including transportation equipment, computers, and fabricated metal products. Orders for "nondurables" such as food and chemicals, dipped.

The overall showing on factory orders wasn't as strong, though, as the 1.7 percent rise economists were forecasting.

The latest batch of economic reports released Thursday suggest that although the economy is slowing it remains in fundamentally decent shape and doesn't appear headed for a dangerous backslide toward recession.

Although economic growth has moderated, inflation has moved higher — presenting a tricky situation for the Federal Reserve.

The Federal Reserve meets next week to examine interest rate policy and economists are divided over the outcome. Some believe the Fed will take its first break after tightening credit for more than two years and leave rates alone. Others, however, predict another bump up will be needed to keep inflation from taking off.

Fed Chairman Ben Bernanke told Congress last month that he and his colleagues are concerned about rising prices for energy and other things but are hopeful that slower economic activity will eventually lessen inflation pressures.

The Fed doesn't want to push up rates too high and cripple the economy. On the other hand, it doesn't want to let inflation get out of control by not pushing rates up sufficiently.

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