U.S. manufacturing continued to expand through September and the growth rate accelerated due to increases in production and hiring.

Business activity in the United States manufacturing sector posted modest growth in September, and the rate of expansion increased, ending a series of monthly slowdowns in the pace of growth through the summer. Despite the unexpected acceleration in growth, manufacturing conditions remain only slightly above the low for the year.

According to the Institute for Supply Management’s (ISM) latest manufacturing Report on Business, U.S. manufacturing expanded for the 26th consecutive month in September, reflecting overall growth in the U.S. economy, which grew for the 28th consecutive month.

The ISM purchasing managers’ index (PMI), a key monthly gauge for the factory sector, reached 51.6 in September, up slightly from the 50.6 reading in August that marked a 12-month low in the index. Readings above 50 indicate overall growth for the industry. Despite the gain, September’s PMI was well below the 12-month average of 56.6. The index has been on a general trend of decelerating growth since hitting a high of 61.4 in February 2011.

“Frankly, the ISM index has understated the strength in manufacturing as measured by the industrial production index in July and August, but now seems to be catching up with the acceleration in manufacturing activity that occurred after the Japanese tsunami’s supply chain effects dissipated,” Daniel J. Meckstroth, chief economist for the Manufacturers Alliance/MAPI, wrote in an analysis of the ISM report. “We believe manufacturing production grew at a 4 percent annual rate in the third quarter, a pace of growth faster than the less than 2 percent growth expected in the general economy.”

The ISM production index rose to 51.2 in September, up from 48.6 in August and signaling a return to growth following a period of contraction. The production index contracted in August for the first time since May 2009.

Twelve of the 18 industries tracked by the ISM reported growth last month: wood products; petroleum and coal products; food, beverage and tobacco products; apparel, leather and allied products; nonmetallic mineral products; machinery; miscellaneous manufacturing; transportation equipment; plastics and rubber products; printing and related support activities; chemical products; and computer and electronic products.

The latest monthly findings generally exceeded expectations, as economists polled by MarketWatch had forecast the PMI to remain relatively unchanged from August.

“The manufacturing sector has been a key driver of the economy’s growth since the recession officially ended in June 2009. The index topped 60 for four straight months earlier this year. It rose above 50 one month after the recession ended and has topped that level ever since,” the Associated Press reports. However, “manufacturing has slowed in the past several months as consumer spending has weakened in response to high unemployment and stagnant wages. High gas and food prices are also forcing shoppers to cut back in other areas.”

These sluggish economic conditions were reflected in several key manufacturing indicators. The ISM new orders index remained unchanged at 49.6 in September, marking the third consecutive month of contraction. Meanwhile, the backlog of orders index dropped from 46 in August to 41.5 in September, the fourth consecutive month of contraction, and supplier deliveries fell from 50.6 to 51.4.

On a positive note, the ISM employment index continued to perform well last month, climbing to 53.8 from 51.8 in August. Data suggest that manufacturing employment has been on an overall growth trend for the past 24 months, bolstering the broader U.S. economy.

“While manufacturing accounts for roughly 12 percent of gross domestic product and about 11 percent of non-farm employment, the sector’s continued expansion and an appetite by cash-rich businesses to spend on machinery should help to steer the economy from recession,” Reuters explains. “September’s manufacturing report showed a pick-up in factory jobs, which could be a good omen for the government’s monthly jobs report for September on Friday. The economy failed to add jobs in August, leaving the unemployment rate at a lofty 9.1 percent.”

Earlier

U.S. Manufacturing Expands in August, but is Struggling

U.S. Manufacturing Expands at Slowest Pace in 2 Years

Manufacturing Grows at Fastest Pace in Almost 7 Years

Resources

September 2011 Manufacturing ISM Report on Business
Institute for Supply Management, Oct. 3, 2011

MAPI Analysis on ISM Index: Manufacturing Neither ‘Booming nor in a Recession’
by Daniel J. Meckstroth
Manufacturers Alliance/MAPI, Oct. 3, 2011

Manufacturing Activity Edges up in September
by Steve Goldstein
MarketWatch, Oct. 3, 2011

Economy up Slightly but Threats Remain, Data Show
by Christopher S. Rugaber
The Associated Press, Oct. 3, 2011

Manufacturing May Help Fight Off New Recession
by Lucia Mutikani
Reuters, Oct. 3, 2011