March factory growth sluggish
In yet another sign that U.S. economic growth may be slowing, manufacturing companies reported Monday that business expanded at a lower-than-expected pace in March even as prices surged for raw materials.
The Institute for Supply Management, a trade group of corporate purchasing executives, said its manufacturing index registered 50.9 in March, below the February reading of 52.3 and Wall Street’s expectation of 51.
A reading above 50 indicates growth for the sector, while a reading below 50 indicates contraction.
Despite the sluggish growth, prices appeared to be surging for certain commodities, including aluminum, cobalt, copper, corn, corrugated containers, diesel fuel, natural gas and steel, as demand increased around the world. The ISM’s price index shot up to 65.5 in March from 59 in February, causing unease among analysts and investors.
“There’s very little growth, but prices are rising. It’s not a healthy mix,” said Nigel Gault, an analyst with Global Insight in Lexington, Mass. Rebounds in oil prices over the last few months are also adding to pricing pressures, he said.
Employment and manufacturers’ inventory levels also declined.
The ISM’s manufacturing sector index, compiled from a survey of the group’s members, has wavered above and below 50 for several months, an indication of the overall economy’s uncertain path. It showed contraction in November, rebounded in December and fell back again in January, only to expand again in February.
The expansion in March marked the second consecutive month of growth for the manufacturing sector, while the overall economy grew for the 65th consecutive month.
The ISM report revealed some positive trends: Companies had more orders for new business and their production expanded in March.
After five consecutive months of growth, the index of customers’ inventories fell to 48, indicating that manufacturers’ inventories are nearing satisfactory levels, said Norbert Ore, chair of the survey committee for Tempe, Ariz.-based ISM. That raised hopes for an increase in orders in the months ahead.
Among the top-performing industries reporting growth in March were apparel; leather and allied products; miscellaneous manufacturing; wood products; transportation equipment; plastics and rubber products; and food, beverage and tobacco products.
The report shows a continuation of the sluggish pace of manufacturing growth that started in the last quarter of 2006, said Thomas J. Duesterberg, president and chief executive of the Manufacturers Alliance-MAPI in Arlington, Va.
