A gauge of US manufacturing rose unexpectedly last month, and is approaching a two-decade high, an industry report showed. More factories are hiring than at any time in 31 years.

The Institute for Supply Management's (ISM) factory index for May increased to 62.8 from 62.4 for April. A reading greater than 50 signals expansion. The index reached 63.6 in January, the highest since December 1983, and has been greater than 60 for seven months. An index of prices paid for raw materials declined.

Manufacturers are hiring workers and buying new equipment to boost production as sales improve. Inventories ended the first quarter at a record low compared with sales, suggesting factories still need to churn out more products to satisfy demand. A rebound in manufacturing is likely to be a pivotal part of the economy as the expansion matures, economists said.

"Production should remain strong for many months and probably into 2005," Richard DeKaser, chief economist at National City Corp in Cleveland, said before the report. "I'm very optimistic about manufacturing."

Economists had expected a reading of 61.5 in the factory index, based on the median of 64 forecasts in a Bloomberg News survey. The index has exceeded 50 since May 2003. The index reached 63.6 in January, the highest since December 1983. It has been higher than 60 since November, the longest stretch since eight months that ended in February 1984.

The group, based in Tempe, Arizona, surveys more than 400 companies in 20 industries, including clothing, printing, transportation, furniture and plastics. Manufacturing accounts for about one-seventh of the economy.

A measure European manufacturing expanded last month at rose to the highest since October 2000. An index based on a survey of about 3,000 purchasing managers compiled by NTC Research Ltd for Reuters Group Plc rose to 54.7 in May from 54 in April.

The new orders index, which accounts for about a third of the total, fell to 62.8 from 65 in April. The production index, a gauge of work being performed, fell to 64.8 from 67.

"It's a strong recovery and I am optimistic," said Arun Raha, economist at Eaton Corp, the second-biggest maker of hydraulic equipment.

Yesterday's data show "robust manufacturing growth going forward."

The employment index increased to 61.9, the highest since April 1973, from 57.8. The index of inventories rose to 49.3 from 44.8, indicating inventories are being run down at a slower pace.

"I expect the uptick to continue, manufacturing employment to keep growing," said Raha. He said he expects the economy to add "going forward the next 12 months, about 175,000 to 185,000 per month, which is pretty robust, pretty good job growth."

(China Daily 06/02/2004 page12)