Many manufacturers said they are willing to hire, a sign that the industry could help ease the nation's high unemployment rate in the months ahead.
The latest report from the Institute for Supply Management did note Monday that manufacturing growth has cooled in the past three months. But much of that was expected. Many businesses are no longer building up their stocks after slashing them during the worst recession in decades.
Wall Street reacted favorably to the first major economic indicator for July. The Dow Jones industrial average surged after its release and was up more than 180 points in midday trading.
"Yes, the pace eased back a touch, but it was nothing to be worried about," said Joel Naroff, president and chief economist for Naroff Economic Advisors. "Indeed, employment expanded faster which was a surprise. Manufacturers have been adding workers at a decent pace and I expected them to start hiring more slowly."
The strength in manufacturing has helped counter weaknesses in the broader economy. Unemployment has been near double digits all year and economists expect it to stay that way through the rest of the year. Businesses are adding jobs, but not enough to bring the unemployment rate down. As a result, consumers are holding back on their spending.
The housing market has struggled since government tax credits expired in April, a point confirmed Monday in a separate report from the Commerce Department. Construction spending edged up slightly in June. Still, all the strength came from government building. Private sector activity in both housing and nonresidential projects fell.