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US manufacturing expanded in August at fastest pace in 3 1/2 years as orders and production rose

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WASHINGTON - U.S. manufacturing grew in August at the strongest pace in more than three years as factories cranked out more goods and new orders rose.

The Institute for Supply Management's manufacturing index rose to 59 from 57.1 in July, the ISM said Tuesday. That was the highest reading since March 2011. Any measure above 50 signals that manufacturing is growing.

Tuesday's ISM report coincides with other signs that manufacturing is helping drive the U.S. economy's improvement. Factories are benefiting from strong demand for aircraft, furniture, and steel and other metals. The boost from manufacturing has helped offset slower homebuilding, a slowdown in consumer purchases and weaker spending on utilities and other services.

"The U.S. economy is on a notably firmer growth track this summer, even if consumers are riding in the caboose," Sal Guatieri, an economist at BMO Capital Markets, wrote in a research note.

The ISM's gauge of production rose to the highest level in four years, and a measure of new orders reached its highest point in 10 years. That suggests that the sector should grow further in coming months. Factories also added jobs last month, though at a slightly slower pace than in July.

U.S. manufacturers face some challenges overseas. A measure of export orders rose, but comments from several respondents to ISM's survey said turmoil in Ukraine and slower growth in China were weighing on business.

A European manufacturing index fell to 50.7 in August, a 13-month low, according to a report Monday. And two surveys in China showed that manufacturing growth also slowed in August.

Bradley Holcomb, chair of the ISM's manufacturing survey committee, said a big jump in orders for aircraft reported by Boeing in July could be feeding through to its suppliers and boosting the ISM's index of new orders.

Still, the strength in new orders is "broad-based at this time," Holcomb said on a conference call with reporters.

The Federal Reserve has reported that factory output rose 1 per cent in July, the sixth straight monthly gain. Production of autos, furniture, textiles and metals all rose.

Orders for big-ticket factory goods such as autos and appliances also soared in July, though the gain reflected mainly a jump in demand for Boeing's commercial aircraft. Such orders tend to be volatile from month to month.

Excluding the transportation category, orders actually slipped last month. And a key category that serves as a proxy for business investment plans fell 0.5 per cent. But that dip followed a big 5.4 per cent gain the previous month.

Greater consumer spending may be needed to keep driving factory growth. Consumers cut back their spending 0.1 per cent in July, the government said, the first decline since January. The decline was led by lower spending on autos.

The U.S. economy grew at a 4.2 per cent annual rate in the April-June quarter, the government said last week. That was much better than the 2.1 per cent contraction in the first three months of the year.

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