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U.S. Manufacturing Activity Rebounds

Source: WSJ - Cynthia Lin

Posted on 01 Aug 2013 by Neilson

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U.S. manufacturingU.S. manufacturers reported a big jump in activity in July, with a key index reaching its highest level in nearly two years, according to a report released Thursday.

The Institute for Supply Management said its July manufacturing index surged to a reading of 55.4 compared with 50.9 in June. That's the highest level since June 2011. A reading above 50 indicates expanding activity.

Economists surveyed by Dow Jones Newswires had expected the latest PMI to come in at 52.0.

Earlier, a similar survey conducted by Markit produced a reading of 53.7 in July. Markit's reading was the strongest in four months, which it said "suggested a solid improvement in overall manufacturing business conditions." As with the ISM, a Markit reading over 50 indicates expansion.

The ISM numbers were unusually strong. The production index jumped 11.6 points to a nine-year high of 65.0. The new-orders component rose 6.4 points to 58.3, and the employment index leaped 5.7 points to 54.4.

"Demand and labor details had a fire lit under them," said Jonathan Basile, director of economics at Credit Suisse.

He did caution that a possibility seasonal adjustment made the data look unusually strong. "But the gains-after seasonal adjustment-also tell us that real-world (not seasonally adjusted) activity was either not as weak as usual (new orders) or was just plain up (production and employment) when it normally is down," he said.

The data suggest a big upturn in activity after a fairly drab second quarter, in which industrial production grew an annual rate of just 0.6%.

The U.S. economy more broadly grew 1.7% in the second quarter, the Commerce Department said Wednesday.

The comments from the purchasing managers themselves were positive but not quite as optimistic. "Overall conditions remain steady and slightly above prior year," said a manager in paper products.

"Sales are holding steady. Business is good," said a manager in furniture and related products.

Global manufacturing data also indicated July strength, with a Chinese indicator edging higher and a strong improvement from Germany and the U.K.