ISM: U.S. Manufacturing Grew More Slowly In March
WASHINGTON (AP) — A survey shows U.S. manufacturing activity expanded more slowly in March than February, held back by weaker growth in production and new orders. But factories hired at the fastest pace in nine months, an encouraging sign ahead of Friday's report on March employment.
The Institute for Supply Management said Monday that its index of factory activity slipped to 51.3 percent. The index fell from 54.2 percent in February, which was the fastest growth since June 2011.
A reading above 50 indicates expansion. The index has signaled growth for four straight months. But the drop in March growth was bigger than economists expected.
Jennifer Lee, senior economist at BMO Capital Markets, said in a note to clients that the March decline might be the first sign that companies are worried about federal spending cuts that took effect on March 1.
But Joshua Shapiro, chief U.S. economist at MFR Inc., cautioned that the index's drop last month might just be a one-month blip. Combined, the ISM reports for the first three months of 2013 "suggest that the manufacturing sector is now making moderate headway."
In addition to faster hiring, new export orders grew faster in March than February.
The ISM said the index was consistent with an annual rate of economic growth 3.3 percent from January through March, up from a tepid 0.4 percent growth rate the last three months of 2012.
Reports Monday showed manufacturing is on the upswing in China and Japan, the second- and third-largest economies in the world.
Growth in China's manufacturing picked up in March, according to a survey by the China Federation of Logistics and Purchasing. And Japanese manufacturers are more upbeat about business conditions than they were last year, according to the Bank of Japan's "tankan" index for the March quarter.
The U.S. economy has proven surprisingly resilient in the face of tax increases that took effect in January and federal budget cuts that began to kick in March 1.
The government reported Friday that U.S. consumers increased spending in February as their incomes jumped. The University of Michigan's consumer sentiment index showed that Americans were feeling more confident about the economy at the end of March.
Underlying the improvement is a strengthening job market. Employers have been adding 200,000 jobs a month since November, twice the pace from last spring. Unemployment fell in February to 7.7 percent, lowest since December 2008.
Economists expect about the same level of job growth in March.
And some insight from Daniel J. Meckstroth, Chief Economist for the Manufacturers Alliance for Productivity and Innovation (MAPI):
“The Institute for Supply Management (ISM) Index was 51.3 in March, down from 54.2 in February but is still above 50, the dividing point between growth and decline. It is clear that manufacturing activity surged this winter, but now that spring has arrived, the reality that there are many headwinds this year is starting to constrain the pace of growth. Consumers faced higher payroll taxes, gasoline prices rose, and wage and salary increases barely exceed the inflation rate. Firms could pick up the pace of investment spending but the budget battles in Washington, where austerity and sequestration are the main issues, have created enough uncertainty to keep a lid on new investments.
“The ISM index for exports did pick up in March,” Meckstroth added, “but it is hard to believe that net exports are driving manufacturing growth when Europe and Japan are in recession and China is just starting to accelerate after a growth slowdown last year. MAPI predicts that manufacturing production will perform only slightly better than overall GDP growth this year. Manufacturing industrial production is forecast to increase 2.2 percent in 2013 and accelerate to 3.6 percent growth in 2014.”