Manufacturing Activity Picks Up in October

Manufacturing activity in the U.S. expanded at a faster pace in October for the first time in six months, according to the Manufacturing ISM Report on Business</I>.
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NEW YORK (

TheStreet

) -- Manufacturing activity in the U.S. expanded at a faster pace in October for the first time in six months, according to the Manufacturing ISM

Report on Business

.

The Purchasing Managers Index rose to 56.9% in October, from 54.4% in the prior month, marking the 15th consecutive month of manufacturing growth. Economists were expecting a slight dip to 54, according to

Briefing.com

. A reading above 50 indicates expansion.

Norbert Ore, chair of the Institute for Supply Management noted, "The manufacturing sector grew during October, with both new orders and production making significant gains. Since hitting a peak in April, the trend for manufacturing has been toward slower growth. However, this month's report signals a continuation of the recovery that began 15 months ago, and its strength raises expectations for growth in the balance of the quarter."

New orders, production and backlog of orders all grew at a faster pace. The index of new orders saw a 7.8 percentage point jump to 58.9% in October, the largest month-over-month increase since January 2009, helping to offset worries about low customer inventories. The production index rose to 62.7% from 56.5% in September, the largest increase since January 2010.

Respondents reported a recovery in autos, computers and exports as key drivers of growth.

ISM's Employment Index registered 57.7% in October, which is 1.2 percentage points higher than the 56.5% reported in September.

Manufacturer inventories grew at a slower pace, with the index of inventories coming in at 53.9%, down from 55.6% in the previous month. Customer inventories picked up but are still too low according to the respondents. The index of customer inventories rose to 44%. A reading below 50 is considered too low.

The index of backlog of orders fell slightly to 46%. A healthy backlog of orders helps sustain production and makes manufacturers less reliant on new orders which tend to be more volatile.

The ISM report is based on a survey of purchasing and supply managers nationwide. Respondents are asked to indicate positive or negative changes in trends in new orders, production, employment, inventories, customer inventories, order backlog, export and import orders and prices.

Manufacturing though no longer a substantial contributor to the economy tends to lead into and out of recessions and is closely watched. So far, manufacturing has led the anemic economic recovery.

Separately, the Commerce Department reported a 0.5% increase in construction spending in September, up from an upwardly revised 0.4% rise in August.

Stocks surged on the wave of positive economic reports. The

Dow Jones Industrial Average ETF

(DIA) - Get Report

and the

SPDR S&P 500 ETF

were up 0.9% and 0.8% respectively. The

SPDR Industrials ETF

(XLI) - Get Report

rose 1.1%.

-- Written by Shanthi Venkataraman in New York

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