NEW YORK (Bloomberg) — American manufacturing expanded for the first time in 19 months, and pending sales of existing homes rose more than forecast, indicating the worst recession since the 1930s has ended.

The Institute of Supply Management's factory index posted its biggest two-month gain since 1983, rising to 52.9 in August; readings higher than 50 signal an expansion. The National Association of Realtors said signed purchase agreements for existing properties jumped 3.2 percent in July, for a record sixth consecutive gain.

Today's figures signal Federal Reserve efforts to unfreeze credit, and initiatives such as the "cash-for-clunkers" automobile incentives, are resuscitating demand. An incipient recovery may sow division on whether to begin withdrawing stimulus measures, with two Fed officials in the past week signaling the central bank may not need to fulfill its asset- purchase commitments.

"We're now in a recovery; for the next few months, the data should look relatively strong because of all the stimulus," Mark Zandi, chief economist at Moody's Economy.com in West Chester, Pennsylvania, said in a Bloomberg Television interview. "The worry is for early next year when the benefit of the stimulus begins to fade."

With the unemployment rate projected to keep rising, and banks continuing to restrict access to lending for US households and businesses, some analysts warned of risks to the recovery. Economists project the Labor Department on Friday will report the jobless rate increased to 9.5 percent in August from 9.4 percent in July. The Fed's Senior Loan Officer survey last month showed banks tightened standards on all types of loans in the second quarter.

The Tempe, Arizona-based ISM's factory index was forecast to rise to 50.5 in August from 48.9 in July, according to the median of 77 projections in a Bloomberg News survey. It dropped to 32.9 in December, the lowest level since 1980.

The jump was led by new orders, with that measure increasing to 64.9, the highest level since December 2004. The production index reached 61.9. A gauge of export orders advanced to 55.5.

"Production in many sectors has been cut well below the pace of sales and what's happening now is that production has had to pick up to keep up with some improving demand," said Dean Maki, chief US economist at Barclays Capital Inc. in New York. "The Fed wants several years of growth in order to bring unemployment back down to where it thinks it should be" and "won't be inclined to tighten rates", he said.

Richmond Fed President Jeffrey Lacker and St. Louis Fed President James Bullard last week said that the central bank may not need to buy all of the $1.25 trillion of mortgage-backed securities it announced in March.

New York Fed President William Dudley, by contrast, said "the market expects us to complete these programmes". In an interview with CNBC, he warned that "it's a little bit premature to be so confident that you want to pull all these things back right now, because the economy still isn't growing very fast and we do have a very high unemployment rate".

Gains in homebuilding aren't enough to prevent total spending on structures from dropping. The amount spent on construction projects fell 0.2 percent to a $958 billion annual pace in July, the Commerce Department reported yesterday. Declines in private spending on non-residential projects such as hotels, offices and shopping malls, and in public construction overshadowed an increase in residential real estate, the report showed.

Foreclosure-driven declines in prices, low borrowing costs and tax credits for first-time buyers are lifting housing demand, helping to trim the glut of properties on the market.

The NAR's pending home sales report is considered a leading indicator because it tracks contract signings. The Realtors' existing home sales report tallies closings, which typically occur a month or two later.

Intel Corp., the world's biggest chipmaker, is among manufacturers benefiting as customers increase inventories back to more normal levels. The Santa Clara, California-based company last week increased its sales forecast for this quarter.