Latest reports from the US show its manufacturing sector grew in August for the first time in more than a year and a half, suggesting a broad, stronger-than-expected recovery.
The Institute for Supply Management reported earlier this week (Sept 1) that its much-watched manufacturing index grew from July to August for the first time in 19 months, rising to 52.9, the highest level since August 2007.
Anything above 50 signals that manufacturing is expanding. The institute says the figure corresponds to an overall economy growing at an annual pace of 3.7%, about twice as fast as economists have been predicting.
Economists had worried that recent signs of life in manufacturing may have been warped by the government’s cash-for-clunkers program, which ignited car sales in August. But 11 of 18 manufacturing industries surveyed reported growth last month.
However economists caution that the Federal Reserve may read the report as a sign it should reverse course and start raising interest rates to contain inflation as the recovery gains speed.
Factory inventories have fallen 40 consecutive months, suggesting that manufacturers will have to crank up production to meet rising demand for their goods.
The report’s only sour note was manufacturing employment was still shrinking in August, though more slowly.