U.S. manufacturers rebounded in September, with fresh data Monday showing factory activity expanded for the first time in four months despite weakening economies around the globe.
The Institute for Supply Management said Monday that its purchasing managers' index—a gauge of the factory sector—rose to 51.5 in September from 49.6 in August. A reading above 50 indicates expansion. U.S. stock markets moved higher after the release.
Details in the report were encouraging, with higher readings for new orders and employment. That could point to a rise in hiring and production in coming months.
"Comments from the panel reflect a mix of optimism over new orders beginning to pick up, and continued concern over soft global business conditions and an unsettled political environment," the report said.
Good news within the U.S. ISM survey was the rebound in demand. The new-orders index rose to 52.3 from 47.1 in August. The exports index edged up to 48.5 from 47.0.
The production index continued to shrink, although it improved to 49.5 from 47.2. The employment index rose to 54.7 from 51.6.
Still, factories are continuing to take a hit on exports as demand for U.S.-made goods overseas declines amid sluggish economies around the world. The slower global economy is an important reason why the sector, while now appearing stronger than during the summer months, is still weaker than it was during the first three years of the recovery.
The ISM report indicated that manufacturers are concerned about growing risks to growth abroad and at home, including worsening conditions in Europe and the prospect of tax increases and spending cuts at home.
Those anxieties were underscored Monday by other data showing further weakening in factory activity in Europe and Asia.
Euro-zone manufacturing activity shrank for the 14th straight month in September, and the number of people without jobs rose to a record, suggesting prospects are slim for a quick return to growth in the crisis-hit currency bloc. Data company Markit said Monday its monthly poll of purchasing executives in the euro zone gave an index reading of 46.1 in September. That compares with 45.1 in August. Any number below 50 shows a decline in manufacturing activity. The decline eased in Germany, but steepened markedly in France.
Manufacturing in China and Vietnam continued to contract last month, though at a slower pace than in August, while Indonesia's manufacturing sector kept expanding, but not as robustly as before. China's official manufacturing purchasing managers' index rose to 49.8 in September from 49.2 in August, lower than analysts' average forecasts for a reading of 50.2. The rise in the PMI followed four consecutive monthly declines.
Brad Holcomb, who heads the Institute for Supply Management's manufacturing survey, said the pickup in U.S. factory activity last month appeared to stem from demand for cars and a slight turnaround in the housing industry. Companies tied to those industries—such as auto-parts suppliers and furniture makers—drove the growth, Mr. Holcomb said. But he added that factory activity isn't likely to expand significantly in coming months given uncertainty in the global economy. "I wouldn't expect any major swings in the next few months," Mr. Holcomb said.
Meanwhile, spending on construction projects slipped for the second straight month in August, even as private residential building reached its highest level in more than three years, showing the uneven nature of the sector's recovery.
Construction spending fell 0.6% in August to a seasonally adjusted annual rate of $837.09 billion as commercial and industrial building slipped, the Commerce Department said Monday.
The drop, which was the biggest in more than a year, was unexpected. Economists surveyed by Dow Jones Newswires had forecast that spending would be up 0.4%.
Revised data showed construction outlays fell 0.4% in July to a rate of $842.02 billion.
Still, year over year, construction spending was up 6.5% in August.
Private residential construction jumped 0.9% from July to $273.47 billion—the highest level since January 2009.
Home building has been a bright spot for the economy of late. In August, new-home sales stayed near their highest level since 2010 and were up 27.7% from a year earlier, according to a separate Commerce report last week.
But private nonresidential building has been weak, falling for three straight months. In August, it decreased 1.7% to $288.73 billion. Construction of offices, factories and power and communication infrastructure all fell.
For the month, total private-sector construction spending fell 0.5% to $562.20 billion.
State and local governments decreased building by 0.9% in August to $249.68 billion as transportation and education construction spending were down from the prior month. Federal construction was up 0.3% to $25.21 billion.