March Growth, Price Pressure Put Fed Watchers on Alert

U.S. industrial activity grew for the 14th straight month in March, and price pressures mounted, according to a key report issued Monday, raising the odds of more Federal Reserve interest rate hikes in coming months.

The National Assn. of Purchasing Management’s March index, closely watched by financial markets because it provides one of the first snapshots of the economy’s health each month, fell slightly in March, to 55.8 from 56.9 in February.

A reading above 50 suggests economic expansion. Economists polled by Reuters had forecast the March index would be 56.9.

The NAPM gauge showing prices manufacturers paid for their goods--a key measure of potential inflationary pressures--increased to its highest level in five years in March to hit 79.8 versus 74.1 in February. The NAPM said 17 out of the 20 industries it surveys paid higher prices last month.

Separately, the government reported that spending on new construction projects rose to a record level in February, fueled by private spending on new housing and office buildings.

The Commerce Department said construction spending rose 1.5% in February to a seasonally adjusted $758.7 billion, after a 2.2% revised increase in January. Economists surveyed by Reuters had forecast a 0.3% drop in February.

Analysts said both reports showed that the economy was still firing on all cylinders, increasing pressure on the Fed to press on with further monetary tightening to ward off inflation.

Norbert Ore, NAPM survey chairman, said manufacturers were facing fresh price pressures coming from a broader range of sources, not only from high energy prices.