Manufacturing contraction slowest since August

U.S. manufacturing activity should grow next month for the first time since January 2008 as industrial companies work to restock customers’ bare shelves, a trade group said Monday.

The Institute for Supply Management findings followed a report last week that the U.S. economy shrank less than expected in the second quarter. They add to evidence that the longest recession since World War II may be over, though any recovery will be subdued.

The institute, a trade group of purchasing executives, said its index measuring U.S. manufacturing activity in July showed the slowest pace of decline since August 2008. The 48.9 reading was up from 44.8 in June. Production and new orders jumped to their highest levels in two years, while new export orders grew after shrinking for nine months.

“If we stay on trend . . . we would expect to be above 50 next month,” said Norbert Ore, chair of the institute’s manufacturing survey committee. A reading above that threshold would indicate growth in manufacturing, something that hasn’t happened in 18 months.

Meanwhile, the Commerce Department said June construction spending rose 0.3%, seasonally adjusted, led by gains in government and residential housing projects. Analysts had expected a 0.5% drop. The data follow earlier reports of increasing home sales and construction in June, fresh evidence that the housing sector is recovering.

The pace of decline in manufacturing has been slowing since the index hit a 28-year low of 32.9 in December. And it was the third straight monthly reading above 41.2, which tends to indicate expansion in the overall economy, if sustained.

“This adds to the growing evidence that the recession ended around the middle of the year,” Capital Economics U.S. economist Paul Ashworth wrote in a research note.