The Institute for Supply Management, a trade group of purchasing managers, says its index of manufacturing activity increased to 54.8 in April. That's the highest level since June and up from 53.4 the previous month. Readings above 50 indicate expansion.
Solid growth in manufacturing suggests the slowdown in hiring and factory output in March may have been a temporary lull. Economists have noted that a mild winter may have accelerated some economic activity at the start of the year, making March's data weaker.
The report exceeded analysts' expectations, prompting investors to shift money out of bonds and into stocks. The Dow Jones industrial average rose 80 points in morning trading.
A measure of employment rose to a 10-month high, an indication that factories are still hiring at a healthy clip. That's a good sign ahead of Friday's April jobs report.
A measure of new orders jumped to its highest level in a year. That could point to faster production in the coming months. New export orders also rose, which could offset worries that Europe and China could drag on exports.
Factories have been a key source of jobs and growth since the recession ended almost three years ago. The sector has expanded for 33 straight months, according to the ISM's index.
Manufacturing has also been a big source of hiring. Factories account for only about 9 per cent of total payrolls but added 13 per cent of the new jobs last year. Manufacturers have added 120,000 jobs in the past three months, about one-fifth of all net gains.
Other reports on manufacturing have been negative. Factory output fell in March, the Federal Reserve said last week. Companies made fewer electronic products and cut back on steel and other metals.
Even so, the decline came after three months of strong gains and economists said the slight downturn wasn't enough to suggest a major slowdown.
Last month, consumers cut back on their purchases of big-ticket items such as automobiles and appliances. And while the job market is improving, incomes are barely growing. That could weigh on consumer spending in the coming months.
Business investment is also slowing. Companies increased their spending on equipment and software at the slowest pace in nearly three years in the January-March quarter, the government said last week.
Even so, economists expect most of the challenges will be temporary. Companies may be ordering less heavy equipment because an investment tax credit expired at the beginning of the year. Orders are likely to rebound later this year, economists say.Suggest a correction