Two indicators show that while the manufacturing sector of the economy continued to grow in March, its rate of growth was slower than the month before. Meanwhile, a separate report showed construction spending rebounded to a level that’s the highest in more than a decade.
Economic activity in the manufacturing sector expanded in March, according to the Institute for Supply Management, with its Purchasing Managers’ Index (PMI) falling to 57.2% following a February reading of 57.7%. This puts the gauge at the six-month low. but places it above the neutral threshold of 50% for the seventh straight month. The reading is slightly better than analysts’ expectations.
The New Orders Index registered 64.5%, a decrease of 0.6 of a percentage point from the February reading of 65.1%. The Production Index registered 57.6%, 5.3 percentage points lower than the February reading of 62.9%.
Despite the overall decline of the 18 manufacturing industries, 17 reported overall growth in March while all said they saw an increase in new orders for the month.
"The past relationship between the PMI and the overall economy indicates that the average PMI for January through March of 57% corresponds to a 4.3% increase in real gross domestic product (GDP) on an annualized basis,” said Bradley J. Holcomb, chair of the Institute for Supply Management Manufacturing Business Survey Committee. “In addition, if the PMI for March is annualized, it corresponds to a 4.4% increase in real GDP annually."
While first quarter 2017 GDP figures have yet to be released, revised numbers issued late last week by the Commerce Department showed the economy expanded at a rate of 2.1% in the final three months of last year-- slightly better than the 1.9% annual rate reported a month earlier.
Some analysts expect the annual rate to be higher when first quarter numbers are released later this month, due in part to increased consumer spending in the final three months of last year, while others are forecasting it will be close to the fourth quarter 2016 level.
Meantime, a separate report showed business conditions continued to improve across the manufacturing sector in March, but the latest upturn was the weakest recorded for six months, per IHS Markit and its final US Manufacturing Purchasing Managers’ Index, based on a survey of manufacturing executives.
According the economic information services provider, the loss of momentum reflected softer rates of output and new order growth, alongside a slower rise in payroll numbers.
Manufacturers sought to adjust their inventory strategies in response to more subdued sales growth, with stocks of finished goods reduced for the first time in six months, the report said.
At 53.3 in March, down from 54.2 in February, the index eased further from the 22-month peak recorded at the start of 2017. The latest reading was the lowest since September 2016. but is above the neutral level of 50.
March data pointed to a further moderation in output growth from the peak seen at the start of 2017. The latest rise in production was the slowest for six months, but still much stronger than the soft patch seen in mid-2016. New orders expanded at the slowest pace since October 2016, thereby signaling a sustained loss of momentum from the peak seen at the start of the year.
The post-election resurgence of the manufacturing sector seen late last year is showing signs of losing steam, according to Chris Williamson, chief business economist at IHS Markit.
“While the survey data suggest that the goods producing sector enjoyed a relatively good first quarter on the whole, the loss of momentum seen in February and March bodes ill for the second quarter,” he said. “The survey data have acted as a reliable advance guide to official data in the past, and in March indicate a slowing of output growth to an annualized rate of around 2%. The survey’s employment index is, meanwhile, consistent with official manufacturing payroll numbers falling slightly.”
Construction Jumps to Highest Rate Since 2006
Meantime, a report on the nation’s construction sector, also issued Monday, showed that construction spending in February increased to an 11-year high of $1.19 trillion. That's 0.8% above January’s upwardly revised level and improved 3% from the same time a year ago.
Gains were reported in private construction, hitting its highest level since May 2006, with residential construction surging and nonresidential edging downward. Public construction rebounded following three straight monthly drops, but there was a big decline in federal spending.
“The construction sector hasn't been on fire but continues to post passable numbers, and momentum may begin to build at least for the housing sector as permits for both single- and multi-family units are on the climb,” said analysts at Econoday, who also described the report as “solid.”