Factory Growth Slows

Manufacturing expanded in March but at a slower rate and February construction spending rose to a record level, together signaling continued strength in the overall economy despite some evidence of inflation.

The Institute for Supply Management said Monday that its manufacturing index registered 55.2 last month compared with 56.7 in February. Readings above 50 indicate the sector is expanding; those below 50 indicate manufacturing activity is shrinking. Economists had projected a reading of 57.7.

The sector’s growth, characterized by strength in new orders to factories and in production, came despite concern among manufacturers about the prices for raw materials, particularly for energy and metals, the institute said.

Also Monday, the government reported that construction spending rose to a record level in February as home building hit an all-time high. The 0.8% increase, to a seasonally adjusted annual rate of $1.19 trillion, came despite a weakening in home sales.

That topped the 0.5% increase expected by analysts, and signals that building will probably continue to fuel economic growth as strong commercial building activity makes up for the slowing housing market.

Taken together, the fresh data are “certainly consistent with an economy growing at a good pace, maybe something at or slightly above the long-term average ... but with inflationary pressure maybe starting to bubble up,” said Patrick Fearon, senior economist with A.G. Edwards & Sons Inc. in St. Louis.

Despite the decline in the manufacturing index, analysts said it reflected continued strength in the sector. After robust growth in February credited to relatively warm weather, the March reading appears to signal a return to a more normal rate of expansion, close to the average of 55.4 the index has shown in the last 12 months.

“Manufacturing is in good shape. It’s moving forward,” said Joel Naroff of Naroff Economic Advisors in Holland, Pa.

The slowing pace of growth was reflected in several measures taken by the Institute for Supply Management. A sub-index measuring new orders to manufacturers registered 58.4, down from 61.9 in February. Production was virtually unchanged, with a reading of 57.5 compared with 57.4 the previous month. The institute’s measure of employment in the sector declined to 52.5 from 55.

Meanwhile, an index measuring prices jumped to 66.5 from 62.5 in February, a sign that costs to manufacturers are increasing more rapidly.