U.S. manufacturing activity near 1-1/2-year high: ISM

WASHINGTON (Reuters) – U.S. manufacturing activity accelerated to its highest level in nearly 1-1/2 years in July as orders increased despite a resurgence in new COVID-19 infections, which is raising fears about the sustainability of a budding economic recovery.

The Institute for Supply Management (ISM) said on Monday its index of national factory activity raced to a reading of 54.2 last month from 52.6 in June. That was the strongest since March 2019 and marked two straight months of expansion.

A reading above 50 indicates growth in manufacturing, which accounts for 11% of the U.S. economy. Economists polled by Reuters had forecast the index would rise to 53.6 in July.

The continued improvement in manufacturing despite sky-rocketing coronavirus cases, especially in the densely populated South and West regions where authorities in hard-hit areas are closing businesses again and pausing reopenings, is encouraging.

High frequency data like weekly applications for unemployment benefits have suggested the economic recovery that started in May with the reopening of businesses, was faltering. Claims for jobless benefits have risen for two straight weeks. A staggering 30.2 million Americans were receiving unemployment checks in early July.

The economy suffered its biggest blow since the Great Depression in the second quarter, with gross domestic product contracting at its sharpest pace in at least 73 years.

The ISM’s forward-looking new orders sub-index increased to a reading of 61.5 in July, the highest since September 2018, from 56.4 in June. The survey’s measure of order backlogs at factories rebounded as did orders for exports.

Still, the outlook for manufacturing is far from robust.

Caterpillar Inc last week reported lower second quarter earnings. The heavy equipment maker, a bellwether for economic activity, said retail sales declines would not get worse in the current quarter, but did not expect them to improve either.

Boeing reported a bigger-than-expected quarterly loss and slashed production on its widebody programs.

Though factory employment continued to improve last month, it remained in contraction territory. The ISM’s manufacturing employment measure rose to a reading of 44.3 from 42.1 in June. Factory employment was already in decline because of the Trump administration’s trade war with China.

(Reporting By Lucia Mutikani; Editing by Chris Reese)