Manufacturing at a 3-1/2 year high

NEW YORK (CNNMoney.com) -- A key index of U.S. manufacturing activity jumped in October, reaching its highest level in three and a-half years, a purchasing managers' group said Monday.

The Tempe, Ariz.-based Institute for Supply Management's (ISM) manufacturing index rose to a reading of 55.7 in October from 52.6 the month before. It was the highest reading since April 2006 when the index registered 56.

Economists were expecting a reading of 53, according to consensus estimates gathered by Briefing.com.

"This is another clear sign the recession is over, and the recovery has begun," said Adam York, an economist at Wells Fargo.

The monthly report is a national survey of ISM members, who are purchasing managers in the manufacturing field. Index readings above 50 indicate growth, while levels below 50 signal contraction. Readings below 41.2 are associated with a recession in the broader economy.

The index first showed growth in August after 18 months of contraction. It dipped slightly in September from the previous month, but has held above the level indicating growth for three months in a row.

"The jump in the index was driven by production and employment," said Norbert Ore, chair of the ISM's manufacturing business survey committee. "Overall, it appears that inventories are balanced and that manufacturing is in a sustainable recovery mode."

The employment index rose to 53.1, indicating growth for the first time in 14 months. The ISM says an employment index above 49.7 is "generally consistent" with an increase in government jobs data in the manufacturing sector.

Ore said the jump in manufacturing employment was due to "some callbacks and opportunities for temporary workers."

On Friday, the Labor Department is expected to report that employers cut payrolls by 175,000 jobs in October after a loss of 263,000 jobs in September, according to a consensus of economists surveyed by Briefing.com. The unemployment rate is expected to rise to 9.9% from 9.8%.

Production in the manufacturing sector rose for the fifth month in a row, led by strength in plastics and rubber products, furniture and apparel.

The gain in production came as the index of new orders for manufactured goods rose for the fourth consecutive month.

The ISM tracks new orders, production, employment, supplier deliveries, inventories, customers' inventories, the backlog of orders, prices, new export orders, imports and buying policies.

Of the 18 manufacturing sectors reporting, 13 posted growth -- including categories such as petroleum and coal products, apparel and transportation equipment. Sectors reporting contractions included metals, mineral products and wood products.

A government report showed last week that theU.S. economy grew at a 3.5% annual rate in the third quarter, ending a string of declines over four quarters that resulted in the most severe slide since the Great Depression.