Activity in the U.S. manufacturing sector unexpectedly grew at an accelerated rate in the month of August, according to a report released by the Institute for Supply Management on Tuesday, with the index of activity in the sector climbing to a three-year high.
The ISM said its purchasing managers index climbed to 59.0 in August from 57.1 in July, with a reading above 50 indicating growth in the manufacturing sector.
The increase by the manufacturing index came as a surprise to economists, who had expected the index to edge down to 56.8.
With the unexpected increase, the ISM said the manufacturing index rose to its highest level since reaching 59.1 in March of 2011.
The unexpected increase by the headline index was partly due notably faster growth in new orders, as the new orders index climbed to 66.7 in August from 63.4 in July.
The production index also advanced to 64.5 in August from 61.2 in July, while the backlog of orders index rose to 52.5 from 49.5.
On the other hand, the report said the employment index edged down to 58.1 in August from 58.2 in July, indicating a slight slowdown in the pace of job growth in the manufacturing sector.
The ISM also said the prices index dipped to 58.0 in August from 59.5 in the previous month, suggesting slower price growth during the month.
Paul Ashworth, Chief U.S. Economist at Capital Economics, said, "The Fed may be more focused on the labor market indicators, but strength like this in the activity surveys will be hard to ignore completely. At the margin, this adds to the case for a first rate hike early next year."
Thursday morning, the ISM is scheduled to release a separate report on activity in the service sector in the month of August.
Economists expect the index of activity in the service sector to dip to 57.5 in August from 58.7 in July, indicating a slower pace of growth.
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