Manufacturing continues growth streak
By Ylan Q. Mui,
Manufacturing bolstered the nation’s economic recovery in March, according to data released Monday, with companies reporting strong gains in production and employment.
The upbeat report fueled hopes that car sales would continue to climb when automakers reveal their monthly results on Tuesday. A strong manufacturing sector also supports economists’ predictions that the number of jobs created in March would remain above the critical 200,000 mark. Those numbers are slated to be released Friday.
“It’s a gift that can keep on giving, so to speak,” said Stuart Hoffman, chief economist for PNC Financial Services.
The Institute for Supply Management compiles a monthly index that polls companies to measure activity across a broad swath of the manufacturing sector. The index registered 53.4 in March, an improvement from the previous month. March also marked the 32nd straight month that the reading has been above 50, indicating that the sector is expanding.
Employment recorded a surprisingly strong 2.9 point increase in March, reaching 56.1 on the ISM index, the highest level this year. Only one industry — computer and electronic products — reported a decline in production in March. The report cited concerns with slowdowns in China but said business remained relatively stable.
Driving the improvement in manufacturing has been the rebound in the once-moribund auto market. Analysts estimate that in March the yearly pace of new-car sales hit nearly 15 million, on track with the previous month. The data will be released Tuesday.
“The heart of the manufacturing recovery — and really a main driver of the economy right now — is durable goods manufacturing,” said Robert Dye, chief economist for Comerica Bank.
The ISM index showed that autos were not the only bright spot in March. Dye said he was particularly encouraged by the performance among nondurable manufacturing sectors such as petrochemicals and nonmetallic minerals. Both were among the top five industries reporting growth last month.
The stock markets also seemed to welcome the news, with all major indices ending the day with gains. The Dow Jones industrial average rose 0.4 percent to close at 13,264.49, while the broader Standard & Poor’s 500-stock index jumped 0.7 percent to 1,418.90.
Still, other economic data tempered enthusiasm over the pace of the global recovery. An index of Europe’s manufacturing economy hit its lowest level in three months in March, a signal that weakness in peripheral countries is spreading to the core. The Markit Eurozone Manufacturing PMI fell to 47.7 in March.
“Eurozone manufacturers suffered a miserable March,” Markit Chief Economist Chris Williamson said in a statement. “Prospects for April also look poor.”
Economists say the trouble in Europe may have been reflected in the drop in new export orders in the U.S. ISM index. Still, exports remain in the expansionary zone.
In addition, the Commerce Department reported Monday that construction spending dropped 1.1 percent in February from the previous month despite warmer weather that economists thought would lift the sector. Part of the decline may have been due to the waning effects of federal stimulus dollars as spending on highway construction slowed by 2.6 percent. Residential building, however, remained relatively stable.
But analysts cautioned that those numbers are often revised significantly, and the first quarter is expected to remain strong. Recent data also show that consumer demand has remained robust despite higher gas prices, creating what economists hope will be a virtuous circle of growth.
“Manufacturing can continue to lead the recovery, but that’s the production side,” Hoffman said. “Clearly if what is produced isn’t bought . . . then they can’t continue to, in effect, lead. They need to complete the circle.”