The week begins on an optimistic note as nearly half of all manufacturing executives reported growth in July, according to a key industry survey.
The ISM Manufacturing Index improved to 48.9 in July, jumping more than 4 points from the June score and marking the fourth straight improvement. This indicates that overall conditions remain in contraction for the 18th consecutive month, but that the slowdown is stabilizing.
Forecasters were looking for a score of 46.5 and the jump was the biggest since September 2005, so markets easily expanded on prior gains after the release.
Leading the improvement was a 55.3 score in New Orders and a 57.9 score in Production, both of which point to expansion in the coming months. Employment remained in contraction for the 12th straight month, but the component climbed 4.9 points to 45.6 in the month, which is better than expectations.
“It is also worth noting that the New Export Orders Index shows growth following nine consecutive months of decline, suggesting that the global economy is recovering,” said Norbert J. Ore, chairman of the ISM’s survey committee.
His comment is backed by comparable data from the international scene: China's manufacturing index inched up 1.6 points to 52.8 in July; manufacturing conditions in the UK expanded by 3.4 points to 50.8 ― the first expansion since April 2008; and manufacturing in the Eurozone neared the 50-mark as it improved 3.7 points to 46.3.
Ore added: “Overall, it would be difficult to convince many manufacturers that we are on the brink of recovery, but the data suggests that we will see growth in the third quarter if the trends continue."
Eric Lascelles, senior strategist at TD Securities, called the report “another piece of evidence that the U.S. economy is regaining its stride after falling flat on its face late last year.” He added that the recession might technically end in the current quarter, but his outlook is cautious as the business sector has played a spectator role in the credit crunch.
That cautious sentiment was echoed by BMO economist Jennifer Lee. “It is looking more and more like the U.S. recession will end in Q3,” she said. “We're not saying ‘happy days are here again’ because the recovery will be sporadic. But it is a recovery.”