September 2, 2014 10:10 AM, EDT
Manufacturing Grows at Fastest Pace in Three Years
Craig Warga/Bloomberg News

Manufacturing expanded in August at the fastest pace in three years as orders grew by the most in a decade, showing U.S. factories will help power the economy into the third quarter.

The Institute for Supply Management’s index unexpectedly climbed to 59, the highest level since March 2011, from July’s 57.1, the Tempe, Arizona-based group reported. Readings greater than 50 indicate growth. The median forecast in a Bloomberg survey of economists was 57.

A drive to update plants and equipment is propelling gains in business investment that will probably keep American factories busy even as consumer spending shows signs of cooling. Better wage growth could broaden household purchases beyond automobiles and help sustain the pickup in manufacturing, which makes up about 12% of the economy.

The gain in manufacturing was “so broad-based,” Bradley Holcomb, the ISM survey chairman, said on a conference call with reporters. There is not one particular driver, “it’s just sort of a continuation of the trend that we’ve had since January.”

Estimates for the factory index from 78 economists in the Bloomberg survey ranged from 55 to 58.5, all falling short of the actual result.

The increase in the ISM index came as the group’s new orders gauge climbed to 66.7, the highest since April 2004.

The group’s production gauge rose to the strongest since May 2010, reaching 64.5 from 61.2 the prior month. The measure of orders waiting to be filled climbed to 52.5 from 49.5.

The report also showed gauges of factory inventories and customer stockpiles both advanced in August from a month earlier. The group’s factory employment measure was little changed in August at 58.1 compared with a three-year high of 58.2 the prior month.