NEW YORK (Reuters) - A closely-watched gauge of U.S. factory activity likely rose in July but stayed below the level showing expansion, suggesting the economy might start to emerge from recession in the second half of the year.
An overhaul of struggling U.S. auto-makers, nascent signs of inventory rebuilding and a slowing in the decline in global demand are helping to revive factory output, analysts said.
The median forecast for July for the Institute for Supply Management's index of U.S. manufacturing is 46.5, according to 25 economists polled by Reuters, up from June's 44.8, which was a 10-month high.
A reading below 50 suggests the sector is contracting.
Regional surveys of manufacturing this week reinforced the notion the sector is on the cusp of turning around, however.
The National Association of Purchasing Management-Chicago said on Friday its index of Midwest business activity rose to 43.4 in July, the highest since September during the height of the global credit crunch.
With increased activity, manufacturers are expected to pay more for services and raw materials. The ISM's prices paid or inflation component likely edged up to 51.0 from 50.0.
The Institute for Supply Management will release its U.S. factory index at 10:00 a.m. EDT on Monday.
Below are some analysts' views on the July ISM report:
BARCLAYS CAPITAL
Forecast: 47
"New orders surpassed the breakeven of 50 in May, and production followed suit in June, climbing to 52.5. The only remaining subcomponents still holding down the headline seem to be employment and inventories, and while the former will likely be the last to recover, the latter should improve significantly over the next couple of months as inventories are shed less rapidly."
IAN SHEPHERDSON, CHIEF U.S. ECONOMIST AT HIGH FREQUENCY
ECONOMICS, VALHALLA, NEW YORK:
Forecast: 46
"With orders in the Milwaukee PMI unchanged (though up a bit after seasonal adjustment) and allowing for other regional purchasing managers indexes, we now expect Monday's national ISM to rise to 46 from 44.8."
ACTION ECONOMICS
Forecast: 46.5
"We have seen the index improve from that level over the last five months and we expect a further improvement in July.
"The rebound in sentiment off the low is tracking the diminishing pace of decline for GDP, from the revised minus 5.4 percent rate in Q4 and minus 6.4 percent in Q1 to only minus 1.0 percent in Q2 and a more stable economy in the second half of the year."
(Polling by Bangalore Polling Unit)
(Reporting by Richard Leong and Ellen Freilich; Editing by James Dalgleish)
