Domestic Manufacturing Improves - www.theguardian.com

US manufacturing expands at fastest rate since July 2011

Institute of Supply Management poll better than forecast, although concerns remain over Fed's quantitative easing plans

• Dominic Rushe in New York

Transportation was one of the industries that reported growth in August. Photo: Andy Clark/ Reuters

US manufacturing expanded in August at the fastest pace since June 2011, according to a closely watched poll of the sector.

Economic activity in the manufacturing sector expanded for the third consecutive month, according to the Institute of Supply Management (ISM). The ISM poll of purchasing managers rose to 55.7% from 55.4% in July – readings above 50% indicate growth in the manufacturing sector.

The poll was better than forecast and comes before the latest monthly job figures are released by the Labor Department on Friday. Of the 18 manufacturing industries measured by the ISM, 15 reported growth – including textile mills, food and beverage, computer and electronic products and transportation equipment. Only one industry, miscellaneous manufacturing, reported contraction in August.

However, respondents to the survey remained cautious, one calling improvements "slight" in a remark quoted by ISM. "Tight government spending still affecting business," reported one transportation equipment executive. "Military slowdown affecting business," said a computer and electronics executive.

The ISM report comes amid concerns about the Federal Reserve's plans to pull back on quantitative easing, its $85bn-a-month bond-buying programme aimed at encouraging investment.

"Following any economic report these days, all roads lead to the effect, or lack thereof, on Fed asset purchases. So in that regard, today's report does nothing to dissuade the Fed from pulling back on purchases. As for the broader economic impact, today's report is entirely consistent with the moderate expansion we've been experiencing," Dan Greenhaus, chief global strategist at broker BTIG, wrote in a note to investors.

The next big test of the strength of the US economy comes on Friday, with the release of the latest non-farm payroll report. US employers slowed the pace of hiring in July, adding 162,000 new jobs – down from 188,000 in June. But the unemployment rate continued to fall, reaching 7.4%, its lowest level in more than four years.