The Institute of Supply Management reported that last month the Composite Index of activity in the manufacturing sector jumped nearly three points from June to 56.6. The latest is the highest level for the index since December and easily beat Consensus expectations for a modest up tick to 54.5.

During the last twenty years there has been a 64% correlation between the level of the Composite Index and the three month growth in factory sector industrial production.

Pricing in the factory sector weakened further with the prices paid index falling below 50, to 48.5, for the first time since February 2002.

Production strengthened materially as indicated by a 5.6 jump in the index to 61.2, its highest level since last September. Inventory restocking apparently provided little of the boost to output as the inventory index fell to the lowest level since April 2004.

New orders added to the strong gain in June and rose to the year's highest level of 60.6 with higher export orders leading the gain. The export order index recovered all of the prior month's drop with a 5.5 point jump to 55.9.

Job growth improved as well. After two months below the break even level of 50 the employment index rose 3.3 points to 53.2, its highest since March. During the last twenty years there has been a 67% correlation between the level of the ISM Employment Index and the three month growth in factory sector employment.