UPDATE: March ISM Report Shows Continued Growth In U.S. Manufacturing

Activity cooled in March, but remained above levels that indicate growth. Rising prices are a concern.

March manufacturing activity cooled in the U.S., while new orders remain at a level that suggests the industry is still on solid footing.

The Institute for Supply Management said Monday its PMI index for March came in at 50.9, below the 52.3 of February but above the 50 level that indicates manufacturing is expanding. The new orders index for the month was 51.6, down from the 54.9 a month earlier, and production eased to 53.0 from 54.1.

“Manufacturing improved slightly in March as the PMI reflected growth for the second consecutive month,” said Norbert Ore, chair of the ISM’s Manufacturing Business Survey Committee. “A positive for March is the customers’ inventories index (falling below 50 after five consecutive months above the breakeven line), which is a possible indication that manufacturers’ inventories are nearing satisfactory levels.”

On the downside, Ore noted that prices for certain commodities are on the rise in the face of slower growth.

Among comments from survey respondents:

- “Industry preparing customers for price increases related to corn/grain cost increases.” (Food, Beverage & Tobacco Products)
  - “Raw material cost soared due to the largest one-month price increase for ferrous scrap since September of 2005.” (Primary Metals)
 - “General business conditions show significant signs of slowing in the manufacturing sector.” (Transportation Equipment)
 - “Business is slowing, but we are slightly ahead of last year’s sales. We are projecting a flat year in sales for 2007.” (Furniture & Related Products)

Among the industries showing the most growth in March were Apparel, Leather & Allied Products; Wood Products; Plastics & Rubber Products; and Chemical Products.

“What we’ve seen is that manufacturing grew in 2005 and the first part of 2006 significantly, and we got to a certain level and now it’s pretty much holding that level,” Ore said. “We’re not falling back and we’re maintaining each month.”

Ore also said a mild pullback in the employment component of the survey is not yet a worrisome sign.

"I would need to see another month or two (of soft employment data) before becoming concerned," he said. "As long as new orders and production are growing I don't see a major decline in employment."