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Manufacturing activity contracted in March

The U.S. industrial sector contracted for a second consecutive month in March, though at a slower pace than in February, new data show.
/ Source: The Associated Press

The U.S. industrial sector contracted for a second consecutive month in March, though at a slower pace than in February, as manufacturers grappled with weakening order books and rising prices for raw materials.

The Institute for Supply Management said Tuesday that its manufacturing index registered 48.6 last month, compared with 48.3 in February. February’s reading had been the weakest in five years.

Readings below 50 indicate contraction, while those above 50 show growth.

The latest index was roughly in line with expectations by Wall Street analysts surveyed by Thomson/IFR.

In morning trading, the Dow Jones industrial average soared 266.17, or more than 2 percent, to 12,529.06. The Standard & Poor’s 500 and Nasdaq composite index also advanced.

Norbert Ore, chairman of ISM’s manufacturing business survey committee, said in a statement accompanying the report that March capped “the weakest quarterly performance for the U.S. economy since the second quarter of 2003.”

He cited weakness in orders and the backlog of orders and added: “Additionally, manufacturers continue to experience heavy cost pressures as the prices they pay are still rising, even with slower overall demand.”

Daniel J. Meckstroth, chief economist for the Manufacturers Alliance/MAPI, a trade group based in Arlington, Va., said in a statement that he believes the manufacturing sector is in recession.

“The combination of declining business activity and rising prices brings back the unpleasant memories of yesteryears’ stagflation, he said. “A recession is always bad news for manufacturers.”

Still, Meckstroth said that the weak dollar, which has supported exports and weakened imports, as well as government stimulus programs “should keep the 2008 recession on the mild side for the industrial sector.”

The institute, which is based in Tempe, Ariz., said its new orders index registered 46.5 in March, compared with 49.1 in February. Ore said it was the fourth consecutive month new orders failed to grow.

The backlog of orders also contracted, with a reading of 47.5 in March compared with 45.0 the previous month.

The price index, meanwhile, soared to 83.5 last month from 75.5 in February.

One bright spot, Ore said, was export demand. The index measuring exports rose to 56.5 last month from 56.0 in February.

Many analysts believe the overall U.S. economy may have fallen into recession in the current quarter as consumer spending has weakened and the housing market has dropped sharply. A recession is traditionally defined as two straight quarters of decline in economic output.

In Washington, the Commerce Department reported Tuesday that home building tumbled for a record 24th straight month. It said overall construction activity dropped 0.3 percent in February, reflecting weakness not only in home building but also in nonresidential activity.

Ore said the ISM reading suggests that while manufacturing is contracting, the overall economy may still show growth in the first quarter. He said the average ISM index reading of 49.2 for the quarter “corresponds to a 2.5 percent increase in real gross domestic product” in that period.