Factories show hints of an end to recession

— -- Manufacturing activity fell in July at the slowest pace in 11 months, boosting stocks and providing further evidence that the recession appears to be winding down.

New orders and production both grew at the fastest clip in about two years, while exports rose for the first time since September, the Institute for Supply Management said.

The survey, along with an upbeat report on construction spending, beat analysts' estimates and heartened investors. The Dow Jones industrial average closed 114.95 points higher at 9286.56.

"I think the trend is very well established that we're slowly building a recovery in manufacturing," said Norbert Ore, chair of ISM's survey committee. The industry, he added, should grow in August for the first time since early last year.

The manufacturing index climbed to 48.9 in July, up from 44.8 in June — the seventh-straight monthly increase. An index above 50 indicates expansion, while below 50 means contraction. Six of 18 sectors reported growth: electrical equipment and appliances; transportation gear; chemicals; printing; paper products; and non-metallic mineral products.

Among those still contracting: machinery; plastics and rubber products; textiles; furniture; computers; food, beverage and tobacco; and metal products.

While the healthy improvement in production was encouraging, even more robust gains in orders indicate customer demand is rising and the upward trend "will be sustained," Ore says.

Another auspicious signal: Inventories of both manufacturers and their customers continue to dwindle. That means factories must soon ramp up production to replenish depleted stocks, Ore says. And the uptick in both exports and imports suggests global trade is stabilizing, RDQ Economics said in a report.

At the same time, manufacturing employment continued to fall, though less sharply than in June. The drop "would be consistent with another large factory job decline" in this Friday's monthly employment survey, chief economist Steven Wood of Insight Economics said in a research note.