US industry expands at fastest rate in three years

The US manufacturing sector expanded in October at its fastest pace in more than three years and, in a detail that surprised economists, added jobs for the first time since before last year's financial panic.

The strong data played into the hands of optimistic economists, who have argued that the US is returning to sustainable growth. They are debating against bears who say that the positive GDP of the third quarter was the result merely of temporary government spending schemes.

The Institute for Supply Management's latest monthly survey implies that GDP growth in the world's largest economy could be as much as 4.5 per cent on an annualised basis in the final three months of the year, according to the trade group's survey chairman, Norbert Ore.

The ISM reading of manufacturing activity was 55.7 in October, up from 52.6 in September and far ahead of expectations of 53.0. A reading above 50 represents expansion. The employment component of the survey jumped to 53.1 from 46.2 a month earlier, suggesting that factories are hiring more aggressively than at any time since 2006.

The ISM data was the first major piece in a week of important reports, which will help to build a picture of the US economy in the final quarter. Construction spending and pending home sales figures were also out yesterday, both surpassing expectations.

The Federal Reserve's open market committee begins a two-day meeting to discuss interest rate policy this morning. While it is likely to keep official rates at near-zero, it has to decide how quickly to unwind its programme of quantitative easing. And on Friday, the US reports unemployment for October, thought to be nearing 10 per cent.