[ForexNews]

The ISM manufacturing index improved to 42.8 in May from 40.1 in April. The forward-looking new orders index rose to 51.1 from 47.2 in April, the first reading above the breakeven point of 50 since November 2007 and suggestive of future growth. The production index jumped to 46.0 from 40.4, and the supplier deliveries component improved to 49.8 from 44.9. The headline composite index was held down by employment, which slipped to 34.3 from 34.4, and inventories, which declined to 32.9 from 33.6. The exports index rose to 48.0 from 44.0 while imports edged higher to 42.5 from 42.0, indicating a slowing in trade contraction led by a pickup in foreign demand. The prices index jumped 11.5 points to 43.5 in May. Overall, this is an encouraging report. Although the employment component continues to lag, this is typical historically and we do not expect it to preclude a recovery in the other components. The other drag, inventories, can be viewed in these circumstances as a bullish sign for the future: continued rapid paring of inventories in the face of new orders growth suggests a bounce in production in the next few months.