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Manufacturing Grows For 1st Time In 4 Months

Mon, 10/01/2012 - 10:49am
Christopher S. Rugaber, AP Economics Writer

WASHINGTON (AP) -- U.S. manufacturing grew for the first time in four months, buoyed by a jump in new orders and more jobs. The increase is a hopeful sign that the economy may be improving after a weak stretch.

The Institute for Supply Management, a trade group of purchasing managers, said Monday that its index of factory activity rose to 51.5. That's up from 49.6 in August.

A reading above 50 signals growth and below indicates contraction. The index had been below that threshold from June through August.

The reading "will boost hopes that some of the recent slowdown in economic growth was just a summer phenomenon," Paul Dales, an economist at Capital Economics, said in a note to clients.

Stocks increased their gains after the report was released. The Dow Jones industrial average had been up nearly 100 points before the report came out. It jumped to 150 points up within 10 minutes of the release.

Separately, the government said U.S. builders spent more on home construction in August, adding to evidence that housing is recovering.

Overall construction spending dipped 0.7 percent, the Commerce Department said, as spending on commercial projects such as office buildings and shopping centers fell.

In the manufacturing survey, a measure of new orders jumped to 52.3, the highest reading since May. That suggests production will increase in the coming months.

And a gauge of employment rose, a sign that manufacturers may report a gain in jobs when September's employment report is released Friday. Manufacturers shed workers in August.

U.S. factory production appears to be picking up after a weakening this spring because of declining consumer demand and a drop in exports.

The improvement in the United States comes even as growth is slowing overseas. Europe's financial crisis has pushed many countries in the region into recession. Growth in emerging nations such as China and India has slowed.

China's manufacturing sector shrank in September, according to a survey by a Chinese trade group. But its measure of factory activity rose for the first time in four months, to 49.8, from 49.2.

The U.S. economy grew at an annual rate of just 1.3 percent in the April-June quarter, down from a 2 percent growth rate in the January-March quarter.

Most economists expect growth will stay near or below 2 percent for the rest of this year. Growth at that pace is typically too weak to lower the unemployment rate.

Employers added 96,000 jobs in August, lower than July's total and far below the average of 226,000 a month in the first three months of the year.

The unemployment rate dropped to 8.1 percent from 8.3 percent in July. But that was only because fewer people were looking for work. The government only counts people as unemployed if they are actively searching for jobs.


Don Norman, Council Director and Senior Economist, The Manufacturers Alliance for Productivity and Innovation (MAPI), has weighed in with his opinion on the ISM's latest numbers:

“Following three consecutive months of decline, the ISM index increased 1.9 percentage points from its August level of 49.6 percent to 51.5 percent,” said Don Norman, Senior Economist for the Manufacturers Alliance for Productivity and Innovation (MAPI). “The index is above the 50 percent mark and is now signaling expansion. Further, all of the indexes showed improvement from last month.  In particular, new orders and employment are growing while indexes such as the backlog of orders, production, and exports, are still below 50 percent and point to continued contraction at a slower rate.  

“This September ISM survey provides the first hint that the pronounced slowdown in U.S. manufacturing that set in after the first quarter of the year may be poised for a turnaround,” Norman added. “It remains the case, however, that the crisis in the Eurozone, slowing growth in China and fears of going over the ‘fiscal cliff’ could nip in the bud any turnaround. It will take continued improvement in the ISM index before we can have confidence that the tide has indeed turned. In the meantime, slow growth remains the most likely short-term outlook for U.S. manufacturing.”

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