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Manufacturing in the US expanded more than forecast in August to the fastest pace since June 2011, a sign the sector will contribute more to the expansion in the second half of the year. The Institute for Supply Management's factory index climbed to 55.7 from the prior month's 55.4, the Tempe, Arizona-based group's report showed on Tuesday. Fifty is the dividing line between growth and contraction.
The median forecast of 85 economists surveyed by Bloomberg called for 54.
Factory activity is getting a boost from demand for automobiles, which is encouraging manufacturers such as Ford Motor Co. to expand capacity. The rebound in residential construction also is helping support orders and production, which may get a further lift as overseas markets stabilize.
"Demand for manufactured goods, whether it is automobiles or household goods or even business equipment, seems to be improving," Russell Price, a senior economist at Ameriprise Financial Inc. in Detroit, said before the report. " That's giving a boost to the sector. As Europe stabilizes and demand improves there, it'll be a benefit to U.S. exports."
Estimates from economists in the Bloomberg survey ranged from 51 to 55.8. Manufacturing accounts for about 12 percent of the economy.
The ISM's new orders measure advanced to 63.2, the highest since April 2011, from 58.3, and the gauge of export demand advanced to a five-month high of 55.5 from 53.5.
The production index decreased to 62.4 from 65 the prior month.
The employment gauge fell to 53.3 from 54.4.
Unfilled Orders
The measure of orders waiting to be filled rose to 46.5 from 45. The inventory index was little changed at 47.5 after 47, while a gauge of customer stockpiles decreased to 42.5 from 47.5. A figure higher than 50 means manufacturers are building stockpiles.
The index of prices paid increased to 54 from 49.
One area of the economy that remains a bright spot is automobile purchases, which are on track for the best year since 2007.
Dearborn, Michigan-based Ford Motor Co., the second-largest U.S. automaker, is expanding output of its Fusion sedan, and said its factory in Flat Rock, Michigan, could produce another model as demand grows. The additional shift of 1,400 new workers at the plant will boost Fusion capacity more than 30 percent.
"We expect the sales momentum to stay here in the U.S. and around the world," Joe Hinrichs, Ford's president of the Americas, told reporters on Aug. 29.
Housing Recovery
The recovery in housing also is spurring demand for construction materials and encouraging consumers to remodel and spend on appliances, benefiting home-improvement retailers such as Atlanta-based Home Depot Inc. and Lowe's Cos., based in Mooresville, North Carolina. The companies each reported second- quarter profit that topped analysts' estimates and raised their annual forecast.
Regional Federal Reserve reports showed manufacturing in the Philadelphia and New York areas expanded in August for the third straight month. The MNI Chicago Report's measure of business activity grew in August for a fourth consecutive month, data showed on Aug. 30.
Some figures indicate the economy was off to a slow start in the third quarter. Consumer spending rose less than forecast in July, and confidence dropped in August from a six-year high.
Expansion in manufacturing will help to sustain progress in the labor market. Payrolls rose by 180,000 workers in August following a 162,000 gain the prior month, and the jobless rate held at a more than four-year low, according to the median forecast of economists surveyed by Bloomberg ahead of Labor Department figures due Sept. 6.
