US manufacturing moves in higher gear

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The US manufacturing sector grew faster than expected in August but private employers unexpectedly cut jobs, showing the economic recovery still faces major headwinds.

The US manufacturing sector shifted into a higher gear in August, in a surprise upswing sure to fuel hopes the economic recovery is stabilizing. Factory activity grew faster than expected last month as an expansion extended into a 13th month, according to a survey by the Institute for Supply Management.

That growth is helping to allay fears of a weakening labor market.

Private companies surprisingly slashed payrolls by 10,000 in August, according to payroll company ADP.

Meantime, a separate survey showed planned layoffs fell to a 10-year low last month. But the survey from outplacement firm Challenger, Gray and Christmas hardly suggests employers are ready to start hiring again.

The report sets the stage for gloomy data due out from the Labor Department on Friday.

Maury Harris is chief economist at UBS.

Maury Harris, Chief Economist, UBS, said, "The unemployment rate probably edges up from 9.5 to 9.6 (percent) and it is going to stay relatively high because as soon as the job situation gets better you'll have people piling back into the labor force looking again. But I think what's important for the market though isn't so much the unemployment rate, per se, as what happens to the number of jobs."

And creating new jobs to make up for the millions lost during the recession is seen as key to putting the economic recovery firmly in place.