The Institute for Supply Management, a trade group of purchasing managers, said Monday that its manufacturing index rose to 52.8 last month from 51.5 in April. That's the highest reading since February. Any reading above 50 signals expansion.
The pickup in factory activity suggests the economy may be growing again after shrinking in the first three months of the year. Still, overall growth remains slow, held back by a range of factors. Americans have been reluctant to boost spending, even as hiring has been healthy and lower gas prices have left them with more money to spend.
And the dollar has risen sharply in value, which makes U.S. goods more expensive overseas and drags down exports. Economists forecast the economy may expand at a 2 per cent annual pace in the April-June quarter, after shrinking 0.7 per cent in the first three months of the year.
A measure of new orders rose to the highest level since December and order backlogs also jumped, the ISM said. A gauge of production fell, though remained above 50. The increase in orders points to greater production in the months ahead.
The figures are "better than expected, suggesting that weakness in manufacturing is past its peak," Jim O'Sullivan, an economist at High Frequency Economics, said in a note to clients. "The second consecutive rise in the ... orders component is particularly encouraging."
And a measure of employment jumped to 51.7, after falling below 50 in April. That means manufacturers added jobs last month.
Manufacturers benefited from the end of a labour dispute at West Coast ports, which has allowed parts and raw materials to flow more freely.
There are also some signs overseas economies are stabilizing. China's manufacturing sector expanded last month, though very slowly, according to an official manufacturing index. But a separate index, compiled by HSBC, a bank, remained in contraction territory.
Manufacturing in the 19 countries that share the euro currency also picked up, with the Markit's manufacturing index rising to 52.2 last month from 52.
U.S. export orders remained flat last month, the ISM said, after increasing in April. Still, that's better than the first three months of the year, when they shrank.
Overall, 14 industries reported growth last month, led by the clothing; furniture; paper products; and food and beverages. Two reported contraction: textile mills and computers and electronics.
Meanwhile, the sharp drop in the price of oil, from $110 a barrel last June to less than $50 in January, has caused drilling companies to sharply cut back on digging and building new wells. That has lowered demand for steel pipe and other equipment.
Overall business spending on buildings and equipment fell 2.8 per cent in the first quarter, the government said last Tuesday. That is the biggest drop in more than five years.
Still, there are signs that businesses, particularly those outside oil and gas, are starting to spend a more on big-ticket items such as machinery and metals. Orders in a category that reflects business investment rose 1 per cent in April, the second straight increase after falling sharply in February.Suggest a correction