The U.S. manufacturing sector saw continued growth in new orders and production in September—the second consecutive month of expansion—suggesting the foundation for a nascent economic recovery remains intact.

A report from the Institute for Supply Management (ISM) showed a slight pullback in its manufacturing index from August, when it posted the first increase in manufacturing activity in 18 months. Despite inching lower, the headline index or Purchasing Managers Index (PMI) came in at 52.6 for September as compared to 52.9 the previous month. That represents a huge jump from December 2008, when the PMI stood at 32.9. Analysts, on average, were expecting a reading of 54.0 in the headline index for September.

“While the rate of growth moderated slightly when compared to August, the recovery broadened as the number of industries reporting growth increased from 11 to 13,” said Norbert Ore, chairman of the ISM, in a prepared statement. “It appears the fundamentals for continuing recovery are still at work as inventories and sales are gaining balance.”

Source: Institute for Supply Management

The ISM index is a monthly composite of five indicators with equal weights: new orders, production, employment, supplier deliveries and inventories. It is based on surveys of purchasing managers and supply executives throughout the United States in 18 industries within the manufacturing sector. A PMI reading above 50 indicates that the manufacturing sector is generally expanding while a reading below 50 indicates that it is generally declining. It frequently moves markets and is considered a key gauge of economic growth.

Underpinning the recent growth in manufacturing has been new orders, which showed a 60.8 reading in September, 4.1 percentage points lower than the 64.9 reading in August, but marking the third consecutive month of growth. A new orders reading above 48.8 is generally consistent with an increase in new manufacturing orders.

The 13 industries participating in that growth include: textile mills; paper products, petroleum and coal; apparel, leather and allied products; wood products; electrical equipment; appliances and components; computer and electronic products; fabricated metal products; printing and related support activities; miscellaneous manufacturing; chemical products; food, beverage and tobacco; and transportation equipment.

The ISM data comes on the heels of several improving economic reports including the Conference Board’s index of U.S. leading economic indicators, which climbed for the fifth straight month, capping its longest stretch of gains since 2004. The positive contributors included supplier delivery times, the interest rate spread, stock prices, building permits, and consumer confidence.

Ken Goldstein, economist at the Conference Board, said that the leading indicator numbers are “consistent with the view that after a very severe downturn, a recovery is very near. But, the intensity and pattern of that recovery is more uncertain.”

Still, national unemployment is nearing double digits and credit markets are tight from a historical standpoint, which serves as a reminder that a return to more normalized conditions will take time.