RTTNews - Following eighteen consecutive months of contraction, the Institute for Supply Management released a report on Tuesday showing that economic activity in the manufacturing sector expanded in the month of August.

The ISM said its manufacturing index jumped to 52.9 in August from 48.9 in July, with a reading above 50 indicating an expansion in the sector. With the increase, the index rose to its highest level since June of 2007.

On average, economists had been expecting a more modest increase by the index to a reading of 50.2, which would have still indicated modest growth in the sector.

Norbert J. Ore, chair of the ISM Manufacturing Business Survey Committee said, The year-and-a-half decline in manufacturing output has come to an end, as 11 of 18 manufacturing industries are reporting growth when comparing August to July.

While this is certainly a positive occurrence, we have to keep in mind that it is the beginning of a new cycle and that all industries are not yet participating in the growth, Ore added.

An acceleration in the pace of growth in new orders and production contributed to the strength in the sector, with the new orders index jumping to 64.9 in August from 55.3 in July and the production index rising to 61.9 from 57.9.

While the employment index also rose to 46.4 in August from 45.6 in July, in continued to indicate a contraction in manufacturing employment.

The report also showed that inventories edged up to 34.4 in August from 33.5 in the previous month, although it remained below 50 for the 40th consecutive month.

Ore said, The growth appears sustainable in the short term, as inventories have been reduced for 40 consecutive months and supply chains will have to re-stock to meet this new demand.

With regard to inflation, the report showed that the prices index jumped to 65.0 in August from 55.0 in July, indicating a notable acceleration in the pace of price growth.

Thursday morning, the ISM is scheduled to release its report on activity in the service sector in the month of August, providing a more complete picture of the economic environment. The index of activity in the sector is expected to edge up to 48.0 in August from 46.4 in July.

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