Despite the deluge of mixed economic news last week from the U.S., indicators of the real economy show a recovery is “clearly underway,” Royal Bank Financial Group Inc. says.

In a report today, economist Allan Seychuk says U.S. factory orders for June, released yesterday, provide another indication better days lie ahead for industry.

Orders rose 1.7% in June, above expectations, although markets had anticipated a strong number following the 2.1% rise in June durable goods orders released two weeks ago. Seychuk notes that in this release of a more complete data set, durable goods orders were revised up to show a gain of 2.6% while the rest of the data was filled in by a 0.7% gain in orders for non-durable goods. The upward revision in durable goods came entirely from stronger orders for a key indicator of business investment spending, non-defence capital goods excluding aircraft, which rose 1.7% in June.

“This suggests firms are either expecting improved conditions soon or are replacing worn-out capital equipment, or (hopefully) both, Seychuk says. “Coming on the heels of the upside surprise in business investment spending in last week’s Q2 GDP release, this data bodes well for Q3. Likewise, the 1.1% rise in June factory shipments shows accelerating activity while another decline in inventories means rising demand will require more production and possibly, more hiring.”

Last week’s data encompassed nearly every major sector of the U.S. economy. But, says Seychuk, on balance the news was mixed. Several indicators met or exceeded expectations and Q2 GDP provided some upside surprises.

“Worryingly, though, consumer confidence data was below expectations and payrolls failed to show the improvement we were hoping for. Those factors speak to the durability of the recovery moving into Q4. Nonetheless, indicators of the real economy show a recovery is clearly underway. “

Also released over the weekend, July auto sales surged by an impressive 6% in the month. Domestic sales rose 6.9% to 13.9 million units versus June’s level of 13 million, while overall sales rose 6.1% to 17.3 million units from 16.3 million in June. Domestic truck sales, the most profitable segment for automakers, surged their highest sales rate since last August.

“Overall, the data suggest significant upside risk to July consumer spending figures,” Seychuk says. “Better yet, tax rebate checks will provide a further boost to consumption in August. The third quarter is shaping up to be an impressive one for both production and consumption, and real GDP growth should come in above our forecast of 4.2%.

“One caveat, though, is that Big Three sales remain down from a year ago, highlighting the more disturbing underlying trends in the auto sector.”