U.S. Manufacturing Grows for First Time in 19 Months

ISM says it is the beginning of a new cycle and that all industries are not yet participating in the growth.

The Institute of Supply Management said its index of the factory sector, also known as the purchasing managers index, jumped to 52.9% from 48.9% in July. Any number above 50 indicates growth.

"The year-and-a-half decline in manufacturing output has come to an end, as 11 of 18 manufacturing industries are reporting growth when comparing August to July," said ISM survey chief Norbert Ore. "While this is certainly a positive occurrence, we have to keep in mind that it is the beginning of a new cycle and that all industries are not yet participating in the growth."

The details of the ISM survey showed strong gains in orders even though employment continued to decline. The new orders sub-index jumped to 64.9% in August from 55.3%, indicating faster growth, the ISM said. Similarly, the production index increased to 61.9% from 57.9%.

The employment index rose to 46.4% from 45.6%, suggesting industries are still cutting jobs but at a slower pace.

"The report concurs with our view that the long, severe manufacturing recession has bottomed out," said Daniel J. Meckstroth, Chief Economist for the Manufacturers Alliance/MAPI. " Manufacturing activity in this early stage of the recovery is being driven by a classic inventory swingparticularly in the automotive sector. It is less that inventories are being added as it is that firms are not destocking. Production, therefore, has to rise as fewer products and materials come out of inventories.

"An encouraging development in the August ISM report is that prices have accelerated," he added. "Rising supplier price pressure confirms that demand is firming. Another positive sign is that U.S. manufacturing trade is advantageous. Growing U.S. exports at a time of flat imports add an important external demand element to the manufacturing recovery. While the August improvement in the indicator is welcome, we caution against over optimism about the pace of the recovery. Previous industrial recoveries were accelerated by a pace of consumer indebtedness that seems unlikely in this cycle."

The ISM said 11 of the 18 manufacturing industries reported growth in August. These included textiles; apparel and leather products; paper products; miscellaneous manufacturing; printing and related activities; computer and electronic products; transportation equipment; nonmetallic mineral products; electrical equipment, appliances and components; fabricated metal; and chemicals.

The six industries reporting contraction in August were primary metals; plastics and rubber; furniture; wood products; food, beverage and tobacco; and machinery.

Copyright Agence France-Presse, 2009, IW Staff

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