Manufacturing activity in the month of August unexpectedly expanded at a faster pace, according to a report released by the Institute for Supply Management on Wednesday, with the data easing some of the recent concerns about the outlook for the manufacturing sector.
The ISM said its index of activity in the manufacturing sector rose to 56.3 in August from 55.5 in July, with a reading above 50 indicating growth in the sector. The increase came as a surprise to economists, who had expected the index to fall to a reading of 52.9.
An acceleration in the pace of production growth contributed to the improvement in the sector, with the production index rising to 59.9 in August from 57.0 in July.
Employment growth in the manufacturing sector also accelerated compared to the previous month, according to the report. The employment index rose to 60.4 in August from 58.6 in July.
James Knightley, an economist at ING Financial Markets, said, "The fact that the employment component strengthened to its highest reading since 1973 has to be viewed as a major positive, but it is clearly at odds with the ADP employment data released a few hours ago."
The report from payroll processor Automatic Data Processing, Inc. (ADP) released earlier in the day said that employment in the manufacturing sector fell by 6,000, the second straight monthly decline.
"This all adds to the uncertainty over the potential outcome of Friday's payrolls report," Knightley said. "Given the conflicting signals regarding the U.S. economy, financial markets are likely to remain choppy and nervous ahead of Friday's figures."
The ISM report also showed a modest slowdown in the pace of new orders growth, as the new orders index edged down to 53.1 in August from 53.5 in July. Nonetheless, the reading above 50 still pointed to the fourteenth consecutive month of new orders growth.
Meanwhile, the report also showed that the inventories index rose to 51.4 in August from 50.2 in July, while the prices index jumped to 61.5 from 57.5 in the previous month.
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