U.S. Factory Sector Weaker, But Not as Bad as Feared

ISM says the 'rapid decline in manufacturing appears to have moderated somewhat.'

The U.S. manufacturing sector contracted in March for a 14th consecutive month but the pace of decline eased, the Institute of Supply Management said on April 1.

The ISM said its index of the factory sector, also known as the purchasing managers index, rose slightly to 36.3% from 35.8% in February.

The figure is far below the 50% level that separates expansion and contraction but somewhat better than expected, with economists expecting a level of 36%.

According to the figures, manufacturing is declining at only a slightly slower rate that the month before, which is not much comfort when manufacturing production (as measured by the Federal Reserve Board) has declined at a 21% annual rate in the three months ending in February compared to the previous period," said Daniel J. Meckstroth, Chief Economist for the Manufacturers Alliance/MAPI.

A massive inventory liquidation is underway as firms cut material inputs below what is normally required by the level of shipments in order to destock; exports continue plummeting; the slack in the economy reduces the need for capacity-expanding capital equipment; and the other side of the construction sector, nonresidential, has just started a long and steep decline, he added. We expect a substantial deceleration in the rate of the decline, as the worst of the inventory swing ends, but the March ISM report suggests that the deceleration has not yet started.

A special question was asked about the U.S. govenrment's economic stimulus package, and five of the 18 manufacturing industries expect to derive some benefit from the stimulus."

The production index edged up to 36.4% from 36.3% and the employment index rose to 28.1% from 26.1%.

New orders showed a stronger pace, at 41.2% from 33.1%, the ISM said.

Copyright Agence France-Presse, 2009

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