August figures mark the first time the composite index has climbed above 50 since the recession began.

After 18 consecutive months of contracting, the manufacturing sector showed signs of positive growth in August, according to the latest report from the Institute for Supply Management (ISM).

Norbert Ore, chair of ISM’s Manufacturing Business Survey Committee, said his reaction was “relief” to see the PMI, ISM’s composite index which covers the overall health of the manufacturing sector, rise 4 percentage points to 52.9%, marking the first time the index has climbed above 50 since the recession began.

Typically, the 50% mark is the dividing line between “growth” and “contraction,” whether in reference to the PMI or any other indices covered by the monthly ISM report.

It wasn’t exactly a surprise. August’s number represents the eighth straight month of increase for the index, and both Ore and ISM have been predicting the index would push past 50 in either the third or fourth quarter this year.

The ISM has also predicted that growth would continue through the rest of the year, paving the way for a stronger sign of recovery in 2010. The PMI alone, Ore said, will most likely stay above 50 until at least the end of the year. Even if it slips, it would have to fall 2.9 percentage points to go back to contraction, which Ore said is unlikely to happen.

“It would be such a large drop now,” he said.

Other ISM statistics from the sector reflect the growth. In August, 11 of the 18 manufacturing industries—Textile Mills; Apparel, Leather and Allied Products; Paper Products; Miscellaneous Manufacturing; Printing and Related Support Activities; Computer and Electronic Products; Transportation Equipment; Nonmetallic Mineral Products; Electrical Equipment, Appliances and Components; Fabricated Metal Products; and Chemical Products—reported growth.

But one of the driving factors, Ore said, was the new orders index, which went up 9.6 points to 64.9%. The boost, Ore said, is partially a rebounding from previously low numbers, but like the PMI growth, Ore expected new orders figures to stay above 50 percent for some time.

Data from a report released by the Commerce Department on September 27th reflected this increase. According to the department, orders for goods expected to last at least three years increased 4.9% in July, the third increase in the last four months, beating analysts’ predictions of 3% increase.

According to the department, non-transportation goods orders and the auto industry also improved, the latter due in part to the “cash for clunkers” program. In all, orders for durable goods rose by the largest amount in two years.

Ore said there was no doubt that the clunkers program, and the federal economic stimulus package in general, had impact on the manufacturing sector’s growth, but the ISM predictions are looking beyond the end of those programs to see an overall growth in the economy that is expected to continue.

Among the lagging numbers are employment and inventories. Employment, according to Ore and the ISM report, only went up 0.8 percentage points, and inventories also grew, by 0.9 points.

But a better “leading indicator” of how inventories are improving, Ore said, are customer inventories, which dropped by 3.5 percentage points to 39%. This indicates customers’ inventories are too low, which should stimulate new orders.

Ore said employment figures traditionally lag behind, both in good times and in bad, so it’s no surprise that the employment index hasn’t shot up like some of the other numbers.

“Manufacturers are very slow to let employees go these days, and they are also slow to rehire,” Ore said.

So far, Ore said the numbers reflect where ISM expected them to be, and the institute expects growth to continue.

“We’re in a normal business cycle-based recovery,” he said.