US manufacturing activity, new orders grow in Aug.NEW YORK -- The U.S. manufacturing sector grew in August for the first time in 19 months, adding to evidence that the recession is ending.
The better-than-expected reading Tuesday by the Institute for Supply Management showed the highest number for its manufacturing index since June 2007. New customer orders jumped to a level not seen since late 2004.
And in another sign of an improving economy, a gauge of future U.S. home sales rose more than expected in July to the highest point in more than two years.
The reports raised hopes for a broad economic rebound. Still, as long as consumers remain hamstrung by weak pay and job losses, and wary of ramping up spending, the economy might not be able to sustain a recovery.
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"Manufacturing will continue to expand," but capital investment will decline because plants have too much excess capacity, said Daniel Meckstroth, chief economist for the Manufacturers Alliance, a trade group. "You're going to see ups and downs."
The ISM, a trade group of purchasing executives, said its manufacturing index rose to 52.9 in August, from 48.9 in July. It's the first reading above 50, which indicates expansion, since January 2008. Analysts polled by Thomson Reuters had expected a reading of 50.5.
New orders jumped nearly 10 percentage points to 64.9 in August, their highest level since December 2004. With strong new orders for two straight months, production should grow at "reasonable rates" for the rest of the year, said Norbert Ore, chair of ISM's manufacturing survey.
A weaker dollar also helped exports grow for the second straight month, after shrinking for nine, according to ISM. The index, which includes new orders, production, employment, inventories, prices and more, is based on a survey of the Tempe, Ariz.-based group's members.
The current growth in the U.S. manufacturing sector has been historically equivalent to a 3.7 percent increase in gross domestic product, Ore said. GDP shrank 1 percent in the second quarter, but many economists expect the recession ended over the summer.
Meanwhile, the National Association of Realtors said its seasonally adjusted index of sales contracts signed in July for previously occupied homes rose 3.2 percent to 97.6. It was the sixth straight increase and 12 percent above the same month last year.
Economists surveyed by Thomson Reuters expected the index would edge up to 96.5.
U.S. construction spending dipped in July as weakness in nonresidential building and government projects offset the best showing for home building in 10 months.