US factories continue recovery

Factory production is rising

The US manufacturing sector is showing further signs of recovery, according to the latest snapshot of the sector.

The Institute for Supply Management (ISM) said its manufacturing index rose to 54.7 last month, up from 51.8 in July.

A figure above 50 indicates expansion and August's figure is the highest reading since December 2002.

Despite the pick-up in activity, the ISM showed the sector was still shedding jobs with the employment index falling to 45.9 from 46.1 in July.

Gaining strength

The ISM greeted the rising activity index with cautious optimism.

We're looking for much stronger growth in the second half in manufacturing and from the economy in general Eric Green, BNP Paribas

"Though two months of growth do not establish a trend, there is strength in various segments of this report that we have not seen for some time," said Norbert Ore, head of the ISM manufacturing survey committee.

"The continuation of a second-half recovery appears on track."

But he added: "We have to see significant growth in manufacturing before industries will rehire."

Surge in output

Behind the growth in the sector was a rise in the new orders index to 59.6 from 56.6 the previous month.

The surge in new orders led factories to boost output, with the production index jumping to 61.6 in August - the highest level since June 1999 - from 53.3

The rebound in the manufacturing sector has bolstered optimism that the US economy is set to enjoy strong growth during the latter half of the year.

Last week, official figures indicated the US economy grew at an annual rate of 3.1% during the April to June period, up from the initial estimate of 2.4%.

"(The ISM index is) consistent with the view that things continue to warm up and we're looking for much stronger growth in the second half in manufacturing and from the economy in general," said Eric Green, senior economist at BNP Paribas in New York.