Manufacturing in the U.S. expanded less than forecast in March as factories slowed production and orders waned.
The Institute for Supply Management’s factory index fell to 51.3 from the prior month’s 54.2 that was the highest level since June 2011, the Tempe, Arizona-based group’s figures showed today. The 2.9-point decline was the biggest since July 2011. A reading of 50 is the dividing line between expansion and contraction. The median forecast of economists surveyed by Bloomberg was 54.
Limited improvement in the global economy and concern about the effects on the U.S. expansion from automatic cuts in federal spending may be prompting some companies to cut back. At the same time, progress in the housing industry and resilient consumer demand will help to cushion the hit, keeping American factories running.
“The outlook for orders is a bit choppy in the near term,” Scott Brown, chief economist at Raymond James & Associates in St. Petersburg, Florida, said before the report. “We’re still very much in recovery mode in the U.S.”
The median forecast was based on projections from 69 economists in the Bloomberg survey. Estimates ranged from 51.6 to 55.
The index of production decreased to a six-month low of 52.2 from February’s 57.6 that was the highest level since April 2012. The new orders measure dropped to 51.4 from 57.8.
The employment gauge increased to 54.2, the highest since June, from 52.6. The gauge of export demand rose to 56, the strongest reading in almost a year, from 53.5.
The measure of orders waiting to be filled fell to 51 from 55. The inventory index decreased to 49.5 from 51.5, while a gauge of customer stockpiles rose to 47.5 from 46.5. A figure less than 50 means manufacturers are reducing stockpiles.
The index of prices paid decreased to 54.5 from 61.5.
Manufacturers projecting a better outlook include Texas Instruments Inc. The largest maker of analog chips raised the lower end of its forecasts for first-quarter sales and profit.
“The stronger demand environment has continued,” Ron Slaymaker, vice president of the Dallas-based company, said on a March 7 conference call with analysts. “Quarter-to-date orders have been growing strongly.”
Manufacturing, which accounts for about 12% of the economy, has rebounded following a mid-2012 slowdown. Orders for durable goods jumped 5.7% in February, the most since September, after falling 3.8% the prior month, the Commerce Department said on March 26.
At the same time, regional reports offered a mixed picture for March. The Federal Reserve Bank of New York’s so-called Empire State gauge showed manufacturing in the region grew for a second month, and the Federal Reserve Bank of Philadelphia’s factory index indicated growth. The MNI Chicago Report’s business barometer fell to the lowest level of this year.
As part of the attempt to rein in the federal budget deficit, the government began across-the-board reductions in spending on March 1. About $85 billion of those will occur in this fiscal year.
Federal Reserve policy makers have said they’re concerned the fiscal restraint may impede the expansion’s progress. The economy cooled to a 0.4% annual rate in the final three months of 2012, after growing at a 3.1% pace in the third quarter.
United Technologies Corp., the maker of Pratt & Whitney jet engines and Otis elevators, is among businesses projecting economic growth will improve.
“The U.S. economy is better and it is going to continue to get better,” Gregory Hayes, chief financial officer of the Hartford, Connecticut-based company, said at a March 14 analyst meeting. “We’ve got another year-and-a-half or so probably of low interest-rate environment, which we could hope to capitalize on.”
Consumer spending climbed in February by the most in five months, even in the face of a two percentage-point increase in the payroll tax. Growth in hiring is one reason for the pickup.