The first major economic report for March suggests that the economy continued to expand last month thanks to manufacturing activity growing at a slightly faster rate. The ISM factory index rose to 53.4, up from 52.4 in February. A reading above 50 indicates a growing manufacturing sector.
The ISM report is good news in the wake of last week’s update on personal income and spending for February. Although consumption growth was strong in February, personal income growth continues to decelerate. If the deterioration rolls on, the trend may derail the economic recovery down the line. The fact that manufacturing continues to revive, however, suggests that there’s still enough forward momentum in the economy to counteract any weakness in other areas.
“The manufacturing sector is in pretty good shape and it’s been increasing at a pretty solid pace,” says Stephen Stanley, chief economist at Pierpont Securities. “Inventories are pretty lean and companies are playing it pretty close to the vest. I don’t see much evidence of underlying weakness.”
John Ryding and Conrad DeQuadros of RDQ Economics advise that the moderately stronger ISM numbers for March “augur well for the payroll and industrial production data for the month,” via Barron’s.
Let’s hope so. Robust Jobs growth is critical for keeping the slowdown in personal income growth from becoming a bigger threat. Today’s ISM update is a small down payment for thinking positively. Economists overall, however, may need more convincing. The consensus forecast (according to Briefing.com) for March private nonfarm payrolls sees a gain of 215,000. That’s pretty good, relative to recent history, although if this guess is accurate it represents a slight drop from February’s 233,000 increase.
Expecting the softer side of growth for March looks reasonable based on the business surveys for activity last month by way of the regional Fed banks, as compiled by economist Ed Yardeni. A sign of new headwinds in the weeks and months ahead? Maybe, although the ISM number du jour suggests otherwise.
The ISM manufacturing index has been in the low 50s since last August and “it’s still right in the middle of that range, suggesting that manufacturing is still chugging along here in the U.S. even though manufacturing is in a recession in Europe and just barely growing in China,” opines Chris Low, chief economist at FTN Financial, via Reuters. “Most of the [ISM subcategory] indices are little changed. The really important ones are new orders, production, the backlog. The production index rose three points. It is the highest since December so that’s good.”