Manufacturers in the U.S. and Canada had some relatively good news to offer today.

In the U.S., the manufacturing Institute for Supply Management index for July came in at an expansionary level, supporting the modest recovery story. Meanwhile in Canada, the business conditions survey of manufacturing industries for the third quarter of this year, though still in negative territory, appears to have improved from the previous quarter.

The survey, the effective Canadian equivalent to the ISM index in the U.S., suggests some improvement in the manufacturing sector over the third quarter, though likely not a great deal.

The percentage of manufacturers expecting to decrease production in the coming months fell from April numbers, improving the balance of production by 9 points to -2 from an upwardly revised figure of -11. Leading this improvement were producers in the transportation equipment, petroleum and coal products, and primary metal industries.

New orders also posted an increase of 8 points, bringing the balance to -8. Showing deteriorations this quarter were unfilled orders, which declined 8 points to -28, and finished product inventories, which fell by 6 points to -20, predominately due to conditions in Ontario and Quebec.

RBC Financial Group economist Ivana Rupcic said the increase in inventory levels comes as no surprise, considering the large build up over the first quarter. Employment also dipped by 2 points in the quarter to -7, as the percentage of manufacturers who expect to decrease employment in the coming quarter rose to 20% from 18%.

In the U.S., the ISM registered a 51.8 reading, just shy of expectations, and a solid jump from June’s 49.8 reading. Anything above 50 suggests expansion.

“The July ISM index showed U.S. factories are slowly on the mend,” says BMO Nesbitt Burns Inc. chief economist Sherry Cooper. “Orders and production were bright but job growth continued to lag. Supplier delivery times are lengthening and inventory building stayed well below 50 in July. Restocking is likely to lead to better results for this manufacturing survey in August and September. The ‘prices paid’ component also cooled.”
The figures “are fully consistent with the emerging second-half speed up in U.S. economic growth,” Cooper says. “U.S. manufacturing is still struggling with an imports headwind, but strong domestic demand is having a helpful positive impact.”

RBC says that it was the first time in five months that the ISM index broke the 50-mark. “Today’s number was just shy of the 52.0 expected, but nonetheless came as welcome news to markets after a long stretch of disappointing news in the manufacturing sector,” Rupcic says.

RBC points out that today’s report comes on the heels of similar improvements seen in the purchasing managers indices for Britain and the Eurozone released this morning. The UK PMI rose to 50.9, its highest level since May of 2002, and the Eurozone index rose 1.4 points to 48.0, still below the expansion mark of 50 but above consensus expectations of 47.0, RBC reports.

“The ISM improvement also coincides with regional manufacturing reports, such as yesterday’s Chicago fed survey and the earlier-released Philadelphia fed survey, and points to some convincing expansion in the manufacturing sector; however, the U.S. economy is not entirely out of the woods yet,” Rupcic says. “This expansion needs to continue, and eventually pull up employment numbers, before markets can breath a genuine sigh of relief.”