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The manufacturing sector expanded in August, following 18 months of contraction, according to the latest Manufacturing ISM Report on Business.
“The ISM report showing that manufacturing activity grew in August concurs with our view that the long, severe manufacturing recession has bottomed out,” said Daniel J. Meckstroth, Chief Economist for the Manufacturers Alliance/MAPI. “At 52.9 percent in August, the index is above the 50 percent threshold dividing growth from decline. Manufacturing activity in this early stage of the recovery is being driven by a classic inventory swing—particularly in the automotive sector. It is less that inventories are being added as it is that firms are not destocking. Production, therefore, has to rise as fewer products and materials come out of inventories.
“An encouraging development in the August ISM report is that prices have accelerated,” he added. “Rising supplier price pressure confirms that demand is firming. Another positive sign is that US manufacturing trade is advantageous. Growing U.S. exports at a time of flat imports add an important external demand element to the manufacturing recovery. While the August improvement in the indicator is welcome, we caution against over optimism about the pace of the recovery. Previous industrial recoveries were accelerated by a pace of consumer indebtedness that seems unlikely in this cycle.”