Tuesday's reading from the Institute for Supply Management, in addition to showing that the U.S. manufacturing sector has been growing now for 38 straight months, also suggests the U.S. economy remains in good shape.
In its monthly report, the ISM pointed out that the historical relationship between its PMI reading and the overall U.S. economy points to real annual gross domestic product growth of 4.6 percent, and annualizing July's reading indicates real annual GDP growth of 4.4%.
Tuesday, the ISM said its index of business activity, the so-called PMI, rose to 54.7 in July, up from June's 53.8 and better than what economists had been expecting.
"Key components of the index - new orders and production - suggest to us that manufacturers are working hard to deliver backlogs as customers' inventories are 'too low,'" said Mary Anne Sudol, an analyst at Caris & Co. "Backlogs are growing but at a slower rate. However, nine industries tracked by the ISM reported increases for new orders in July, including primary metals, electrical equipment, along with appliances and components, and computer and electronic products."
She said the food, beverage and tobacco group is also showing resilience.
Meanwhile, lead times for production materials - 54 days in July versus 50 days in June - and spares - 27 days versus 23 days - are increasing, suggesting producers remain cautious about adding production capacity in the U.S.
According to Sudol, electrical equipment is among the industries consistently advancing in the ISM survey, and among the key players on the upswing are General Electric and Eaton.
"Both are important suppliers of electrical and power management equipment to the non-residential construction sector, which has shown strength for some months," Sudol said. "GE's traditional home-appliances business has also been a strong performer in 2006."
The analyst pointed out that Rockwell Automation provides the enabling equipment and software to manufacturers looking to raise factory productivity to offset rising raw material and labor costs, and one of its more important industry segments is consumer packaged foods and beverages.