Manufacturing in the US shrank in June at the slowest pace in 10 months, another sign the worst of the recession may be over.
The Institute for Supply Management’s factory index rose to 44.8, the highest level since August, from 42.8 in May, according to the Tempe, Arizona-based group.
Readings below 50 signal contraction.
Stabilization in consumer spending, the biggest part of the economy, may prompt factories to boost production in coming months.
After trimming stockpiles at the fastest pace on record in the first quarter, companies continued to cut back in the last three months, meaning any pickup in demand will spark a recovery in manufacturing.
The index “is consistent with a third-quarter recovery in manufacturing,” said Dean Maki, chief US economist at Barclays Capital in New York.
“Inventories are starting to approach levels where production will have to pick up.”
Economists forecast the gauge would rise to 44.9, according to the median of 73 forecasts in a Bloomberg News survey. Estimates ranged from 40 to 47.5.
Stocks held earlier gains following the report. The Standard & Poor’s 500 index rose 1.3 percent to 930.99 at 10:46 a.m. in New York.
The gauge gained 15 per cent in the three months ended yesterday, the biggest quarterly increase since 1998, breaking a streak of six consecutive declines.
Another report showed the number of Americans signing contracts to buy previously owned homes rose in May for a fourth consecutive month, a sign sales may be stabilizing.
The 0.1 per cent gain in the index of signed purchase agreements, or pending home resales, followed a 7.1 per cent gain the prior month that was higher than previously estimated, the National Association of Realtors said today in Washington.
Figures from ADP Employer Services today also showed companies cut more jobs than forecast in June, signalling the labour market will be slow to improve even as other parts of the economy indicate the recession is abating.
The 473,000 drop in the gauge followed a revised reduction of 485,000 workers in May that was smaller than previously estimated.
The ISM’s production index climbed to 52.5, the highest level since January 2008, from 46 the prior month.
The employment index improved to 40.7, the highest level since September, from 34.3. A gauge of export orders increased to 49.5 from 48.
Bloomberg