Manufacturing unexpectedly expanded in April at the fastest pace in 10 months, driven by gains in orders and production that signal the U.S. remains a source of strength for the global economy.

The Institute for Supply Management’s factory index climbed to 54.8 last month, exceeding the most optimistic forecast in a Bloomberg News survey, from 53.4 in March, the Tempe, Arizona- based group’s report showed today. Readings greater than 50 signal growth. The median forecast in the Bloomberg survey called for a drop to 53. Measures of production and orders were the highest in a year.

 

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Workers at the Columbus Castings facility in Ohio on April 25, 2012. Photographer: Ty Wright/Bloomberg

Stronger demand for automobiles is bolstering American manufacturing at a time when factories in other parts of the world are paring production as growth cools. At the same time, the industry faces headwinds from smaller gains in business investment, less contribution from inventories and recession in parts of Europe.

In the U.S., “the manufacturing side of the economy is holding up well, and you’re going to continue to see that,” Steve Ricchiuto, chief economist at Mizuho Securities USA Inc. in New York, said before the report. “A huge portion of the strength is from autos, and production assembly plans are not being tempered.”

Estimates ranged from 52 to 54. The gauge averaged 55.2 in 2011 and 57.3 a year earlier.

The ISM’s production index climbed to 61 in April, the highest since March 2011, from 58.3. The new orders measure increased to 58.2, the strongest since April 2011, from 54.5. The gauge of export orders rose to 59 from 54.

Factory Employment

The employment gauge climbed to a 10-month high of 57.3 from 56.1 in the prior month.

The index of prices paid held at 61.

The measure of orders waiting to be filled decreased to 49.5 from 52.5. The inventory index dropped to 48.5 to 50, while a gauge of customer stockpiles increased to 45.5 from a three- month low of 44.5. A figure lower than 50 means manufacturers are reducing stockpiles.

Elsewhere, a U.K. manufacturing index fell more than forecast in April as export orders declined the most since May 2009. The gauge of factory output, based on a survey by Markit Economicsand the Chartered Institute of Purchasing and Supply, dropped to 50.5, the lowest this year, from a revised 51.9 in March, Markit said on its website today. The median forecast in a Bloomberg survey called for a decline to 51.5 from an initial March estimate of 52.1.