Manufacturing Sector Shows Signs Of Growth

The Institute for Supply Management’s (ISM) July manufacturing index had a reading of 48.9, beating estimates from economists, who expected a jump to 46.5 from June’s 44.8, according CNN Money. July’s report marks the 18th straight month of contraction in the sector. Still, ISM signaled cautious optimism.

The month-to-month improvement indicates that the rate of contraction has slowed, but not reversed, ISM said. Manufacturing is a key gauge of the strength of the overall economy. The monthly report is a national survey of ISM members, who are purchasing managers in the manufacturing sector. Index readings above 50 signal growth, while levels below 50 indicate contraction. Readings below 41.2 are associated with a recession in the broader economy.

The data track new orders, production, employment, supplier deliveries, inventories, customers’ inventories, backlog of orders, prices, new export orders, imports and buying policy. Of the 18 manufacturing sectors, six reported growth, including categories such as transportation equipment, appliances and paper products. The 11 that reported contraction included machinery and food.

New orders snap decline: The key new orders component jumped to 55.3 in July, from 49.2. New orders are an indicator of manufacturing activity in the near future. The rise in new orders broke nine straight months of decline.

The employment component of the report rose to 45.6 in July, up 4.9 points from the previous month. Despite the index’s increase, it marks the 12th consecutive month of decline in employment. Consistent readings above 49.7 are generally tied to an increase in government data on manufacturing employment.

U.S. Treasury Secretary Timothy Geithner said the U.S. unemployment rate may not peak until the second half of 2010, even as the broader economy shows signs of improvement. Another extension in unemployment benefits is something that the administration and Congress are going to look very carefully at, Geithner said.