New manufacturing data eases recession fears

Manufacturing in the U.S. unexpectedly grew in August, helping to ease concerns that the economy is headed back into recession.

From Bloomberg:

The Institute for Supply Management’s factory index fell to 50.6 last month from 50.9 in July, the Tempe, Arizona-based group said today. Figures greater than 50 signal expansion. Economists projected the gauge would drop to 48.5, according to the median forecast in a Bloomberg News survey.

Robert Dye, chief economist at Comerica Inc. in Dallas, told Bloomberg that the ISM report is “one vote for dodging the recession bullet, but we have to balance that on some of the other votes coming in, most notably the bottom dropping out of consumer confidence in August."

Reuters reported similar reactions from analysts. Economists told the agency they now put the odds of a recession between 20 and 30 percent, down from as high as 50 percent last month.

"I am breathing a little sigh of relief that the bit of data that we have had over the course of August is weak but not giving the recessionary type of signal," Stuart Hoffman, chief economist at PNC Financial Services, told Reuters.

"The ISM survey is consistent with an economy staggering forward at a weak pace of growth. When the economy tips into recession, the ISM index usually drops into the low 40s," said Nigel Gault, chief U.S. economist at IHS Global Insight.

According to Reuters, "more light will be shed" on the economy on Friday, when the government releases its August employment report.

Meanwhile, a separate report from the Labor Department released Thursday showed that initial claims for unemployment benefits dropped 12,000 to a 409,000 last week, suggesting that layoffs have not picked up following the recent stock market turmoil.

That's not to say Thursday's reports offered much reason to cheer. From Reuters:

…claims are still above the 400,000 usually associated with a stable labor market and key details of the ISM survey, including production, new orders and employment were weak.