Ahead of the Bell: ISM manufacturing index

ISM manufacturing index expected to grow in September for 2nd straight month

• On 6:40 am EDT, Thursday October 1, 2009

NEW YORK (AP) -- Economists expect growth in U.S. manufacturing accelerated in September after the sector moved into positive territory in August for the first time in 19 months.

Analysts polled by Thomson Reuters expect the index from the Institute for Supply Management, a trade group of purchasing executives, will read 54 in September, compared with 52.9 in August. A reading below 50 indicates contraction.

The index, which includes new orders, production, employment, inventories, prices, and export and import orders, is scheduled for release at 10 a.m. EDT Thursday. It is based on a survey of the Tempe, Ariz.-based group's members.

In the U.S., government spending and customers needing to restock their shelves are helping manufacturers ramp up.

Businesses slashed spending on inventories at a record pace of $160.2 billion in the second quarter. That means industrial companies will have to boost production, even if just to restore customers' depleted stocks.

Manufacturing will "do the initial heavy lifting of the recovery," said Joseph LaVorgna, chief U.S. economist at Deutsche Bank.

The economy likely grew between 3 and 3.5 percent in the summer quarter, according to IHS Global Insight economist Nigel Gault, and the fourth quarter "should also look solid." That follows consecutive declines of 2.7 percent, 5.4 percent, 6.4 percent and 0.7 percent since the third quarter of last year -- the longest and deepest recession since the Great Depression.

Data on goods-producers is murky. In mid-September, the Federal Reserve said industrial output jumped 0.8 percent in August, a second straight gain. But last week, the government said orders for durable goods, which are expected to last for three years, fell 2.4 percent in August. Analysts had expected an increase.

Corporate results are mixed. While General Mills Inc. said its profit surged 51 percent in its fiscal first quarter as demand for Cheerios and Yoplait stayed strong, quarterly results this month from smartphone makers Palm Inc. and Research in Motion Ltd. disappointed.

Exports may give a boost to manufacturers. China's economic growth in the second quarter jumped to 7.9 percent from 6.1 percent in the first three months of the year, and its industrial sector grew in September for the sixth straight month.

The all-important issue of jobs, however, remains dim. Manufacturing hasn't added a net new job in three decades, according to the Manufacturers Alliance, a trade group.

Layoffs continue. On Tuesday, jet engine manufacturer Pratt & Whitney Canada said it would lay off more than 400 workers by next year. It is owned by Connecticut-based United Technologies Corp., which said in March it intends to slash 11,600 jobs.

And dampened consumer spending will continue to weigh on the economy. Next year, as the effect of restocking inventories wanes and government stimulus measures are tapped, IHS Global expects growth will slow to between 1.5 and 2 percent.

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