New York, NY, Sept. 3--Manufacturing activity picked up strongly in August for a second straight month, but the employment picture remained grim.
The Institute for Supply Management reported Tuesday that its manufacturing index rose to 54.7 last month from 51.8 in July. A reading above 50 indicates expansion, while one below 50 indicates that manufacturing activity is slowing.
The index in August was at its highest level since a 55.2 reading last December and was stronger than the 53 analysts had been expecting.
Norbert J. Ore, who oversees the index for the ISM, said the numbers were encouraging.
"Though two months of growth do not establish a trend, there is strength in the various segments of this report that we have not seen for some time," Ore said in a statement accompanying the report.
He noted that new orders and production have both had readings above 50 percent for four consecutive months, suggesting that "the continuation of a second-half recovery appears on track."
Still, employment continued to deteriorate.
The manufacturing sector has lost 2.7 million jobs since June 2000, and the ISM index for employment fell to 45.9 in August from 46.1 in July.
"It's a disappointment that factory employment appears to have declined slightly faster in August than in July," said Patrick Fearon, an economist at A.G. Edwards & Sons Inc. in St. Louis. He blamed foreign competition in some industries and lack of strong capital spending in others.
David Huether, director of economic analysis for the National Association of Manufacturers in Washington, D.C., said he didn't expect the job situation to improve until next year.
The ISM index, which is based on a survey of managers who buy raw materials in 20 industries, is closely watched as a measure of the health of the nation's manufacturing sector.
Manufacturing has been slower than other sectors to recover from the last recession, but in recent months it has been showing some renewed strength. The Commerce Department reported last month that orders for U.S. factory goods rose a solid 1.7 percent in June, the second consecutive monthly gain.
Economists noted that the August ISM figures suggested there would be further growth in coming months in manufacturing.
Dan Meckstroth, chief economist with the Manufacturers Alliance/MAPI, a business research group in Arlington, VA, said the overall report was positive.
"What's most important is that orders are expanding as fast or faster than production," Meckstroth said. "That means that prospects for future growth in production should continue to rise."
New orders, the backlog of orders and supplier deliveries all improved in August. Prices were flat, and inventories were down slightly.
The closely watched production index rose to 61.6 in August from 53.3 in July.
"The surge in August production is very positive for the manufacturing sector," said Ore, who is also director of sourcing and procurement at Georgia-Pacific Corp. "The production index is the highest that it has been since June 1999, when it also registered 61.6 percent."
Of the 20 industries covered in the report, 13 reported growth, including leather, furniture, wood and wood products, apparel, electronic components, printing, chemicals, fabricated metals and glass and stone.
