US manufacturing activity heated up in July to a two-year high in the second straight month of growth, according to a monthly survey released Thursday. The Institute for Supply Management said its purchasing managers index for the
manufacturing sector leaped to 55.4 in July, a solid 4.5 percentage points higher than June's 50.9 level.
The PMI reading was well above the average analyst prediction of 51.5 and the highest since June 2011. The PMI index has been above 50 -- expansion territory -- for the first seven months this year except May, when it dipped to 49.0. A reading below 50 indicates a contraction.
Based on a survey of 18 manufacturing industries, the July PMI index showed a powerful 11.6 point increase in production to 65, the highest level since May 2004. New orders, pointing to further growth, rose 6.4 points to 58.3, its best number since April 2011. Employment in manufacturing rebounded from a two-month contraction, gaining 5.7 points at 54.4. Inventories and prices, however, fell into contraction territory.
"Comments from the panel generally indicate stable demand and slowly improving business conditions," said Bradley Holcomb, chair of the ISM manufacturing survey committee. Factories were off to a good start in the third quarter after a tepid second quarter, when the overall economy grew just 1.7 percent.
"The July report is particularly comforting because the future direction for manufacturing activity had been uncertain while the overall economy struggled to achieve very modest growth in the first half," said Dan Meckstroth of the Manufacturers Alliance for Productivity and Innovation. He said the surge in July production and new orders "gives growth momentum" to the sector, confirming the group's forecast of a manufacturing pick-up in the second half of 2013.
Some analysts said the robust PMI report would help support the Federal Reserve's consideration of tapering its big bond-asset purchase program, a move widely expected to be announced as early as the Fed's September 17-18 monetary policy
meeting. But other analysts questioned whether the strength of the July report was due more to technical and seasonal factors and correctly indicated further growth.
"Overall this report was positive for activity in the second half of the year, but note that some of this strong reading may be a reflection of seasonal factors and we could see some slowdown next month," Nomura Global Economics said in a
research note.
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