Factory Index Highest Since Sept.

New orders index rose above the 50% mark that separates contraction from expansion

The Institute for Supply Management (ISM) index rose to 42.8% in May from 40.1% in April. The rise was stronger than expected and the strongest since September.

"While the May report suggests continued contraction in U.S. manufacturing output, the data add to mounting evidence of an abatement in the deep factory sector recession," said Cliff Waldman, economist for the Manufacturers Alliance/MAPI. "The ISM Index is approaching the levels of August and September of 2008 when the financial shock turned a mild economic and manufacturing downturn into an historically severe one. Key components paint a hopeful picture of a bottoming process.

"The new orders index rose above the 50% mark that separates contraction from expansion for the first time in 17 months," he noted, "and the index that tracks the backlog of orders rose sharply to 48%, still below 50% but nearing the point where demand will make a positive contribution to future production. In tandem with a continued liquidation of inventories, these data suggest that the worst has clearly past for U.S. factories. Nonetheless, a real recovery might be months away. The global economic picture remains difficult and financial conditions are still problematic. But better days are clearly ahead."

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