U.S. manufacturing activity increases for first time since May

October 1, 2012

It may not be time to crack open the champagne just yet, but recent figures show that U.S. manufacturing activity has increased for the first time in four months.

According to the Wall Street Journal, data released by the Institute for Supply Management (ISM) revealed that its purchasing managers' index, a marker that indicates growth in factory activity, rose to 51.5 in September from 49.6 in August. Economists have forecast that there is some slow forward momentum in the manufacturing industry, but any reading over 50 in the ISM indicates expansion in the sector.

There was more good news for companies planning their future manufacturing strategy, with ISM report showing that the new-orders index increased from 47.1 in August to 52.3 in September, with the exports index moving slightly up to 48.5 from last month's figure of 47.0.

Factory production is also slightly up, recorded as being at 49.5 as opposed to 47.2, while employment went from 51.6 to 54.7, with the report showing a mixture of optimism despite continued concerns over the state of the euro zone and the drop in demand for U.S. manufactured goods. However, according to Reuters, the export demand for high-tech manufactured good continues to rise with a recent survey by UPS showing that 85 percent of companies expect to significantly increase shipping overseas by 2015.

Concerns over the fiscal cliff have generated a number of headlines in the media, but a series of free-trade agreements between the U.S. and a number of South American countries have either already started or are about to go into effect. Twenty-three percent of companies surveyed by UPS revealed export growth since 2010 but 74 percent are expecting to make significant inroads over the next two to five years.

The increase in factory activity seems to stem from the automobile industry, with the analysts at the ISM revealing that a demand for cars and associated products allowing manufacturers to move forward. Recent housing reports have also indicated that property values and sales have increased incrementally over the last few months, another sign that could point to a brighter future for the U.S. economy with private residential building continuing to grow.

"Companies tied to those industries – such as auto-parts suppliers and furniture makers – drove the growth," said Brad Holcomb, head of the ISM manufacturing survey. "But factory activity isn't likely to expand significantly in coming months given uncertainty in the global economy, I wouldn't expect any major swings in the next few months."