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Economic Watch: Manufacturing Expands, Construction Flat

April 1, 2014

By Evan Lockridge

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Economic activity in the U.S. manufacturing sector expanded in March for the 10th consecutive month, and the overall economy grew for the 58th consecutive month, say the nation's supply executives in the latest Manufacturing ISM Report On Business released on Tuesday.

The March Purchasing Managers Index from the Institute of Supply Management registered 53.7%, an increase of 0.5 percentage point from February's reading of 53.2%, indicating expansion in manufacturing for the 10th consecutive month. The increase was slightly less than one consensus poll of economists were predicting, but it was the second straight monthly increase.

A PMI in excess of 43.2%, over a period of time, generally indicates an expansion of the overall economy, according to the group.

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"The past relationship between the PMI and the overall economy indicates that the average PMI or January through March [at 52.7%] corresponds to a 3.1% increase in real gross domestic product on an annualized basis. In addition, if the PMI for March [at 53.7%] is annualized, it corresponds to a 3.5% increase in real GDP annually,” said Bradley J. Holcomb, chair of the Institute for Supply Management Manufacturing Business Survey Committee.

The New Orders Index registered 55.1%, an increase of 0.6 percentage point from February's reading of 54.5%. The Production Index registered 55.9%, a substantial increase of 7.7 percentage points compared to February's reading of 48.2%.

Of the 18 manufacturing industries, 14 reported growth in March.

A similar survey from the financial information services provider Markit shows in March the U.S. manufacturing sector remained on a solid growth footing, with output levels and new business volumes both rising sharply.

“The latest increase in new work was slower than in the previous month, but still the second-fastest since May 2010. Meanwhile, the rate of production growth was little-changed from the near three-year high recorded in February,” the group said.

"Winter weather was widely cited as the cause for the activity slowdown in recent months, but more temperate March conditions have hardly resulted in the activity rebound expected now that snow and ice storms are behind us," said Lindsey Piegza, chief economist with the investment firm Sterne Agee. "This suggests it was more than weather repressing activity. More likely uneven domestic demand and tepid international demand have also been key, long term factors dampening manufacturers' production plans particularly amid a sizable inventory stockpile still overhanging from the fourth quarter."

Meantime, a separate report from the U.S. Commerce Department released Tuesday shows construction spending in February increased 0.1% from January, totaling $945.7 billion.

The department also revised down January’s performance from a 0.1% increase to a 0.2% drop.

February’s performance was hurt by a 0.8% decrease in residential construction, the largest decline since last July and due to the harsh winter, while nonresidential construction spending increased 1.2%, hitting its highest level since December 2008.

 

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