Jeanna Smialek Washington

MANUFACTURING in the US expanded in August at the fastest pace in three years as orders grew by the most in a decade, showing factories will help power the economy into the third quarter.

The Institute for Supply Management’s index unexpectedly climbed to 59, the highest level since March 2011, from July’s 57.1, it said yesterday.

A drive to update plants and equipment is propelling gains in business investment, which will probably keep US factories busy even as spending by consumers shows signs of cooling. Better wage growth could broaden household purchases beyond cars and help sustain the pick-up in manufacturing, which makes up about 12 percent of the economy.

“Things are doing relatively well,” Scott Brown, the chief economist at Raymond James & Associates, said before the report, citing vehicle sales as a bright spot for manufacturing. “We’re generally optimistic.”

The increase in the index came as the group’s new orders gauge climbed to 66.7, the highest since April 2004.

The production gauge rose to the strongest level since May 2010, reaching 64.5 from 61.2 the prior month. The measure of orders waiting to be filled climbed to 52.5 from 49.5.

The report showed gauges of factory inventories and customer stockpiles both advanced in August from a month earlier.

The factory employment measure was little changed in August at 58.1 compared with July’s three-year high of 58.2.

The figures follow data last week that showed the economy expanded at a 4.2 percent annualised pace in the second quarter after falling 2.1 percent in the first three months of the year.

Consumer spending, which accounts for almost 70 percent of the economy, started the third quarter on a soft footing.

Purchases retreated in July, the first time in six months, as wages failed to accelerate, a report last week showed.

At the same time, a job market on the mend could provide momentum: the economy has added more than 200 000 jobs for each of the six months to July.

People who are confident in their employment prospects may be more willing to take on big purchases such as cars, which with light trucks sold at a rate of 16.4 million in July, a slowdown from 16.9 million in June. That was the fastest rate since mid-2006.

Gains in business investment may help make up some of the shortfall among consumers. New orders for durable goods soared 22.6 percent in July after a revised 2.7 percent gain in June. June’s figure was bigger than previously estimated, according to Commerce Department data issued last week.

Though the surge was driven by demand for aircraft, bookings for vehicles and parts also climbed. Revised data for June reflected improving demand for an array of items, including computers, electrical equipment and machinery.

Hewlett-Packard (HP) last month reported fiscal third-quarter sales that topped analysts’ estimates, fuelled by improving personal computer (PCs) sales. Corporate spending on PCs also helped lift the results of other technology companies recently. Intel in July forecast revenue that exceeded analysts’ estimates for the current quarter, while Microsoft said it was seeing signs of improvement in the PC market.

Meg Whitman, HP’s chief executive, said: “We believe we can continue to gain share in PCs, despite the challenges in this market as it consolidates.” – Bloomberg