NEW YORK (AP) – Manufacturing activity picked up strongly in August for a second straight month, suggesting the start of recovery in the fragile industrial sector. But the job picture remained weak.

The Institute for Supply Management reported that its manufacturing index rose to 54.7 last month from 51.8 in July. A reading above 50 indicates expansion, while one below 50 indicates that manufacturing activity is slowing.

The August reading was stronger than the 53 that analysts had been expecting, and was the highest level since a 55.2 reading in December.

Norbert J. Ore, who oversees the index for the ISM, said the numbers were encouraging.

“Though two months of growth do not establish a trend, there is strength in the various segments of this report that we have not seen for some time,” Ore said in a statement accompanying the report.

He noted that new orders and production have both had readings above 50 percent for four consecutive months.

The index, which is based on a survey of managers who buy raw materials in 20 industries, is closely watched as a measure of the health of the nation’s manufacturing sector.

Manufacturing has been slower to recover than other sectors from the last recession, but in recent months it has been showing some renewed strength. The Commerce Department reported last month that orders for U.S. factory goods rose a solid 1.7 percent in June, the second consecutive monthly gain.

Economists said the August ISM figures suggested there would be further growth in coming months in manufacturing, but that employment still showed little sign of recovery.

The manufacturing sector has lost 2.7 million jobs since June 2000, and the ISM index for employment fell to 45.9 in August from 46.1 in July.

“It’s a disappointment that factory employment appears to have declined slightly faster in August than in July,” said Patrick Fearon, an economist at A.G. Edwards & Sons in St. Louis. He blamed foreign competition in some industries and lack of strong capital spending in others.

But Dan Meckstroth, chief economist with the Manufacturers Alliance/MAPI in Arlington, Va., said the overall report was positive.

“What’s most important is that orders are expanding as fast or faster than production,” Meckstroth said. “That means that prospects for future growth in production should continue to rise.”

After the report was released, the Dow Jones industrial average gave up its early gains. Rising 40 points early in the session, it was off 0.76 points or 0.01 percent at 9,415.06 in early afternoon trading.

Broader market indicators were slightly higher, but had also given up some of their earlier gains. The Standard & Poor’s 500 index was up 1.64 points or 0.2 percent at 1,009.65 at early afternoon, and the Nasdaq composite index was up 3.80 or 0.2 percent at 1,814.25.

Several numbers in the ISM report for August suggested further growth in coming months. New orders improved, as did the backlog of orders and supplier deliveries. Still, employment continued to decline.

The closely watched production index rose to 61.6 in August from 53.3 in July. Of the 20 industries covered in the report, 13 reported growth, including furniture, wood and wood products, apparel, electronic components, printing, chemicals and fabricated metals.

—

On the Net:

http://www.ism.ws

AP-ES-09-02-03 1249EDT