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US manufacturing still grows but at slower pace in March

Keywords: Tags  Institute for Supply Management, ISM, Purchasing Managers Index, defense spending, housing construction, Nigel Gault, IHS Global Insight, corinna petry

CHICAGO — U.S. manufacturing activity grew for a fourth straight month in March but at a slower pace as declines were seen in new orders, production and prices, according to the Institute for Supply Management (ISM).

The ISM’s purchasing managers index (PMI) for March dropped 2.9 percentage points from the previous month to 51.3, which still indicates overall growth in the domestic manufacturing economy.

The new orders index fell 6.4 percentage points to 51.4, the production index slipped 5.4 points to 52.2 and the prices index declined 7 points to 54.5.

Both primary metal producers and fabricators said they experienced production growth last month, although producers saw a decline in new orders. Fabricators saw a rise in new orders in March while continuing to hire workers and build inventories. "Automotive is still very strong," one surveyed fabricator said.

Metal producers lowered their inventories in March and deemed their customers’ inventories as too high; both fabricators and metal producers reported that their order backlogs had increased.

"A company we buy steel from also pre-cuts steel for new home construction," a purchasing manager member of ISM’s Chicago chapter said. "Back in 2007, they shipped 110 rig packages per week; today, they ship two rig packages per week."

A buyer in the transportation equipment sector said that reduced government spending in the defense sector had lowered business output.

"Any (business) exposed to the defense sector (is) feeling the squeeze from government spending cuts," said Nigel Gault, chief U.S. economist for Lexington, Mass.-based IHS Global Insight Inc.

Another Chicago survey respondent said there had been "lots of noise of large orders coming, but we are still waiting to see them."

Fabricators said they paid lower prices last month, while producers’ input prices were flat compared with February.

Meanwhile, fabricators saw export orders rise, but producers’ export orders fell. Metal producers saw imports decline; conversely, fabricators saw an increase in imports.

"The most encouraging indicator in the report was export orders, whose index hit its highest level since April 2012," Gault said. "Sectors that benefit from the housing revival are leading the way (such as wood products), while the news on export orders promises better times ahead for those selling abroad."

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