US factory sector grows for first time in 19 months

The US manufacturing sector grew in August after 18 consecutive monthly declines, a survey from the Institute of Supply Management showed Tuesday.

Have your say: Financial Crisis

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

The figure was stronger than the average economist estimate of 50.5 percent and positive news for an economy struggling to emerge from a sharp recession that began in December 2007.

“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 manufacturing sector has been showing signs of emerging from its slump even as US consumer spending has been sluggish and unemployment has been rising.

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 percent in August from 55.3 percent, indicating faster growth, the ISM said. Similarly, the production index increased to 61.9 percent from 57.9.

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

Manufacturing has been emerging from its slump as companies replenish stockpiles from big production cuts over the past few months, and from a resurgence in auto sales, lifted by government incentives in the “Cash for Clunkers” program.

“We think the auto clunker program is responsible for this surge in activity, plus some improvement in export sales,” said Ian Shepherdson, chief US economist at High Frequency Economics.

“Remember, there is no strength in domestic consumption to keep it rising.”

Daniel Meckstroth, chief economist for the Manufacturers Alliance, said activity “is being driven by a classic inventory swing, particularly 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,” Meckstroth said.

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.  –AFP