RTTNews - While the Institute for Supply Management released a report on Wednesday showing a continued contraction in manufacturing activity in the month of June, the pace of contraction slowed from the previous month amid some encouraging signs for the sector.

The ISM said its index of activity in the manufacturing sector rose to 44.8 in June from 42.8 in May, with a reading below 50 indicating a contraction in the sector. The index came roughly in line with the expectations of economists, who forecast a reading of 44.6.

Norbert J. Ore, chair of the ISM Manufacturing Business Survey Committee said, Manufacturing continues to contract at a slower rate, but the trends in the indexes are encouraging as seven of 18 industries reported growth in June.

Ore said that a turnaround in production was the most encouraging sign, with the production index jumping to 52.5 in June from 46.0 in May. With the increase, the index rose above 50 for the first time since July of 2008 and reached its highest level since January of 2008.

Employment also saw some improvement in the month, although it continued to contact. The employment index rose to 40.7 in June from 34.3 in the previous month.

At the same time, the report showed that the new orders index slipped back below 50, dipping to 49.2 in June from 51.1 in May.

Commenting on the data, Peter Boockvar, equity strategist at Miller Tabak said, The question remains how long the bridge is from a slowing rate of contraction to a period of expansion.

With regard to inflation, the ISM said that the prices index jumped to 50.0 in June from 43.5 in May, with the increase reflecting the recent increase in commodities prices.

The report also showed that the inventories index fell to 30.8 in June from 32.9 in May, indicating a faster pace of contraction in inventories.

However, inventory correction should now be near its end, said Commerzbank analyst Bernd Weidensteiner. After a violent draw-down of inventories, firms will have to restock in the not-too-distant future.

The ISM will provide a more complete picture of the economic environment next Monday with the release of its report on activity in the service sector. The index of activity in the sector is expected to edge up to 46.0 in June from 44.0 in May.

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