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The world's factories are gearing up again, but with fewer workers.

After the devastating collapse of global trade, plant closings and too many layoffs around the world to count, manufacturing is finally showing signs of a slow but steady recovery.

From the strong manufacturing centres of Asia to those in North America and Europe that had retrenched, the vital business of producing goods for domestic and export consumption is showing unexpected strength. Inventories are falling, production is ramping up in some key markets and employment is finally stabilizing, albeit at low levels.

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Along with repairing the financial system and getting bank credit flowing again, stemming the bloodletting in manufacturing and resuming investment in production is crucial to a sustained recovery from the worst global economic slump since the Great Depression.

Unless the private sector is prepared to step in when deficit-plagued governments inevitably withdraw life support from ailing economies, "we'll be back where we started," warned Robert Powell, a senior editor with the Economist Intelligence Unit.

That's why the snapshot of improving global manufacturing conditions last month, and reported Monday, has to come as welcome news to policy makers everywhere.

In the most important of all economies, the latest survey by the U.S. Institute for Supply Management - a closely watched gauge of manufacturing activity - expanded at its fastest clip in three years.

And the employment subindex in the hard-hit sector reached its highest level in 31/2 years.

The ISM manufacturing index climbed to 55.7, its best reading since early 2006. Any reading above 50 indicates an expanding sector.

"These are the best numbers we've seen in some time," said economist David Resler of Nomura Securities in New York. "There's no question it's good news. If it can be sustained, it's great news."

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But sustained growth will require improved job numbers, which fuel higher demand. And gains on the hiring front depend on that pickup in demand.

"The whole sustainability question is somewhat circular," Mr. Resler said.

The unexpected employment increase does not herald a job recovery, Norbert Ore, chairman of the ISM manufacturing business survey committee, told Bloomberg Television.

"I would take it as an indicator more that the rate of decline has probably dropped significantly in preparation for some minor growth in jobs a little bit later. I don't think it'll be this year."

One reason for the better employment reading is the way questions are posed to manufacturers participating in the survey. They are asked, for example, if they hired more workers in the latest month and whether payrolls are higher.

But once staff levels are reduced to a bare minimum, even one replacement counts as a hiring increase.

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Other surveys tracked similar recovery signals from producers in Britain and the euro zone, the 16 countries that use the common currency, where activity picked up for the first time in 17 months. And China continues a strong recovery, as manufacturers reaped the benefits of higher domestic demand and improved export markets.

"Anecdotal evidence suggested that firmer demand from abroad, with North America mentioned in particular, had pushed export sales higher," HSBC said in a statement accompanying its latest China manufacturing purchasing managers index reading. The October level of 55.4 was an 18-month high.

An official index compiled by China's National Bureau of Statistics came in at 55.2.

In the euro currency zone, the index barely clawed its way above the crucial line between recovery and decline. But the 50.7 reading was its highest in a year and a half.

A global manufacturing index that ties together data from the various regions soared to its highest level in more than five years.

Even bearish analysts were hard-pressed to pour cold water on the improved manufacturing outlook, beyond pointing out that conditions had been so dreadful they were bound to show at least modest improvement.

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But they remain convinced that the recovery will be slow and fitful. One indicator: The important ISM new orders index fell for the second consecutive month.

Other large black spots also still dot the global manufacturing landscape. Makers of capital equipment, for example, face excess capacity and weakened demand, analysts say.

Companies remain cautious about spending, bank lending is still depressed and the private sector has yet to show it is ready to replace massive government stimulus with its own investment capital, Mr. Powell of the Economist Intelligence Unit told a Toronto business audience Monday.

The Economist Group unit sees a W-shaped recovery for the U.S., with the jobless rate continuing to rise in the months ahead.

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