The latest manufacturing report from the Institute for Supply Management showed positive signs for a return to growth in the current quarter, despite a contraction in the sector for the 18th consecutive month.
Manufacturing contracted at a slower rate in July as a key manufacturing index registered 48.9 percent, which is 4.1 percentage points higher than the 44.8 percent reported in June.
Norbert J. Ore, chair of the ISM manufacturing survey committee, said more leading components of the PMI - the New Orders and Production Indexes - rose significantly above 50 percent, setting an expectation for future growth in the sector.
The monthly report surveys ISM members including purchasing managers for companies in the farm equipment and construction equipment industries. Index readings above 50 indicate growth, while levels below 50 mean a contraction.
A reading above 41.2 over time generally indicates an expansion of the overall economy. The July PMI indicates growth for the third consecutive month in the overall economy and continuing contraction in the manufacturing sector.
"Even though the index is still in contraction, it's above that recession threshold," said Sam Bullard, economist at Wachovia, according to CNNMoney.com. "These numbers are stronger and definitely significant."