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The manufacturing sector, which for months had been pressing forward at a steady, but hardly inspiring, pace, really took off in July. Specifically, it registered a surprising surge, according to the Institute for Supply Management, a Tempe, Arizona-based trade group, to its best reading in two years. To wit, the group reported that this critical sector registered a result of 55.4 last month. That result was materially better than the score of 52.0, which had been the consensus forecast, and the 50.9 result reached in June.

It should be noted that scores above 50.0 denote a manufacturing sector that is expanding; scores below that dividing line suggest that this area is undergoing some contraction, but that the economy, at large, is not necessarily in recession.

As noted, this was the best overall result since June of 2011, as new orders surged. In fact, this was the best level of new orders in more than two years. This upbeat report suggests that the nation's business expansion will step up a notch during the closing half of this year, as we have been maintaining for some time.      

As to individual components, the report noted that new orders jumped to 58.3 last month from 51.9 in June; employment rose from a sub-50 reading of 48.7 to 54.4, auguring well for tomorrow's monthly employment report from the government; and production soared from 53.4 to 65.0. Only exports and backlogs contracted last month.

Looking at the data in the aggregate, this was obviously the best report in the last 12 months, a full year in which the range of results have been 49.0 to last month's 55.4, with an average result of 51.9. This was clearly an upbeat report and one that suggests our expectation of second-half GDP growth of 2%, or so, could well prove to be conservative. However, we prefer to see some additional business metrics issued before making an upward adjustment in our overall growth expectations.

At the time of this article's writing, the author did not have positions in any of the companies mentioned.