US supply executives reported stronger than expected growth in the manufacturing sector of the world's largest economy in June thanks to rising new orders and solid production growth.
The Institute for Supply Management's (ISM) purchasing managers' index (PMI) showed that of 18 manufacturing industries in the US, 15 reported growth – the best among them, household furnishings, non-metallic mineral products, machinery and electrical equipment.
Headline ISM index
The headline index climbed to 57.8 in June, up from 54.9 in May and beating expectations of a smaller climb to 55.2. A reading above 50 indicates expanding activity in the sector.
June was the tenth-consecutive month of growth for the index and its highest level since August 2014.
As well as stronger new orders and production, managers also reported robust growth in employment, which ISM said was generally consistent with an increase in labour department data on manufacturing employment.
With the Federal Reserve expected to make a third quarter-point rate increase this year in September, analysts are looking to strength in the labour market. The Bureau of Labor Statistics releases its monthly payrolls data on Friday.
IHS Markit survey contrasts
The ISM data contrasted sharply with a similar report of purchasing executives by IHS Markit, whose data pointed to a rather subdued month for the manufacturing sector.
Its index registered 52 in June, down from 52.7 in May and was said to reflect slower rates of output and new business growth.
Positive market reaction
The ISM gauge is widely regarded as the benchmark for PMIs in the US and market reaction suggested investors were more in tune with this data.
The dollar was up 0.5% against the euro at $1.1367, climbed 0.6% against sterling to $1.2941 and gained 0.7% versus the yen to Y113.21.
Stocks were broadly higher in mid morning trade in New York, with the Dow Jones Industrial Average up nearly 1% and the S&P 500 up 0.5%.
"Comments from the panel generally reflect expanding business conditions," the ISM report said.
Andrew Hunter at Capital Economics added: “The ISM data supports our view that annualised GDP growth has rebounded strongly in the second quarter.”
Auto sales slow
The three biggest carmakers in the US reported slowing sales growth in June, but two of the trio's sales remained better than sector analysts had predicted after a record year in 2016.
All three stocks rallied, with Ford up 3.4%, Fiat Chrysler 3.8% higher and General Motors 2.4% stronger.