Factory ISM reading falls to 50.6

WASHINGTON (Reuters) – U.S. manufacturing unexpectedly grew in August and fewer Americans filed new claims for jobless aid last week, defying a slump in confidence that threatened to push the economy back into recession.

The Institute for Supply Management (ISM) said on Thursday its index of national factory activity ticked down to 50.6 from 50.9 in July. The modest slowdown confounded economists’ expectations for a fall to 48.5.

Any reading below 50 indicates a contraction in the nation’s factory sector.

A separate report from the Labor Department showed initial claims for state unemployment benefits dropped 12,000 to 409,000, showing little sign of a pick-up in layoffs in the wake of declining business and consumer confidence.

“We’ve gotten a few better reads from data, and my general sense is that things aren’t as bad as the headlines read. Companies aren’t seeing dramatic change,” said Tom Porcelli, U.S. economist at RBC Capital Markets in New York.

U.S. stocks erased losses on the manufacturing data, while Treasury debt prices trimmed gains. The dollar rose against a broad basket of currencies.

However, key details of the ISM survey were soft and initial claims remained perched above the 400,000 level usually associated with a stable labor market.

That indicated the pace of economic growth would remain slow, but further reduced the odds of a second recession.

“The net result is a slowdown, disappointing growth for the third quarter but not a recession,” said John Silvia, chief economist at Wells Fargo in Charlotte, North Carolina.