Ahead of the Bell: ISM manufacturing index

NEW YORK - Economists expect growth in U.S. manufacturing picked up in October as the economy improved and demand from overseas increased, welcome signs for the fledgling recovery.

Analysts polled by Thomson Reuters expect the index from the Institute for Supply Management, a trade group of purchasing executives, will read 53 in October, compared with 52.6 in September. A reading above 50 indicates growth.

ISM's manufacturing index first showed growth in August after 18 months of contraction.

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

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

The government last week said economic activity rose 3.5 percent in the third quarter, the first growth after a record four straight quarterly declines. The question now is how sustainable that increase will be as consumer spending falters, Americans' incomes remain stagnant, and bank credit for small businesses and shoppers remains hard to get.

In the current quarter, production increases seems likely. Businesses continued to reduce their inventories in the July-September period, the government said last week. That means industrial companies will have to boost production soon, even if just to restore customers' depleted stocks.

The government said orders for big-ticket manufactured goods in September rose 1 percent, while output at the nation's factories, mines and utilities rises for the third straight month in September.

Mining and construction equipment maker Caterpillar Inc. last month said China sales rose, and its CEO Jim Owens saw "encouraging signs" of a recovery, although next year will continue to be difficult.

But heavy hiring in manufacturing isn't likely to happen any time soon, even though a weaker dollar means American exports are more competitive abroad and emerging economies are demanding more goods, especially in Asia.

Manufacturing hasn't added a net new job in the U.S. in three decades, according to the Manufacturers Alliance, a trade group.

ISM's employment measure dipped in September to 46.2 from 46.4, the 14th straight month of contraction.

While farm equipment maker Deere & Co. said last week it will recall 452 workers it laid off from an Iowa plant earlier this year to start production of 2010 models, Sun Microsystems Inc. said last month it plans to eliminate up to 3,000 jobs, before it's acquired by Oracle Corp.

Copyright 2009 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.