U.S. factory activity grew at the fastest pace in 2 1/2 years in February as new orders and production both advanced.
An index of factory activity rose to 57.7 from 56 in January, the Institute for Supply Management said Wednesday. A measure above 50 signifies expansion, while below means contraction. Economists expected a smaller increase to 56.2. It marked the sixth straight month the sector has grown.
Manufacturers have mounted a solid comeback since last year, largely as a result of a partial rebound in oil prices that has spurred more drilling and related investment. Also, a dollar that made U.S. goods more expensive for overseas customers had stabilized until a recent rally, bolstering exports.
In February, the production index increased from 61.4 to 62.9, highest since March 2011. And a measure of new orders, which foreshadows future output, jumped from 60.4 to 65.1, highest in more than three years, But the employment index fell to 54.2 from 56.1, possibly signaling sluggish hiring in the February payroll report out next week.
Seventeen of the 18 manufacturing sectors reported growth last month, with only furniture contracting.
The report "suggests that factory sector activity is experiencing a strong resurgence after the prolonged period of weakness over the past couple of years," wrote in a note to clients. "It also suggests that GDP growth is set to pick up in the first quarter."
And economist Jim O'Sullivan of High Frequency Economics says the strong reading provides more evidence for the Federal Reserve to raise interest rates at a mid-March meeting to prevent an excessive increase in inflation.