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The ISM said its index of activity in the manufacturing sector rose to 55.7 in October from 52.6 in September, with a reading above 50 indicating growth in the sector. Economists had been expecting a more modest increase by the index to a reading of 53.0.
With the bigger than expected increase, the index rose to its highest level since coming in at a reading of 56 in April of 2006.
Norbert J. Ore, chair of the ISM Manufacturing Business Survey Committee, said, "The jump in the index was driven by production and employment, with both registering significant gains."
The report showed that the production index jumped to 63.3 in October from 55.7 in September and the employment index rose to 53.1 from 46.2 in the previous month. The growth in manufacturing employment comes on the heels of fourteen consecutive months of contraction.
"Production appears to be benefiting from the continuing strength in new orders, while the improvement in employment is due to some callbacks and opportunities for temporary workers," Ore said.
While Rob Carnell, chief international economist at ING, said that manufacturing employment is an important component of the labor report due out on Friday, he noted that it is non-manufacturing jobs that will shape the overall payrolls and unemployment rate result.
The ISM also said that the new orders index edged down to 58.5 in October from 60.8 in September, while the inventories index rose to 46.9 from 42.5 in the previous month.
On the inflation front, the report showed that the prices index rose to 65.0 in October from 63.5 in September, indicating the fourth consecutive month of price growth.
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