US factories expand again in March but at slower pace

An index of manufacturing activity retreated from a 2-1/2-year high in March amid modest declines in new orders and production, but a surge in manufacturing jobs indicated that the sector's energy-led recovery was gaining momentum.

The decline in the services employment gauge is also a potentially negative indicator for Friday's payrolls report, which is forecast to show the USA added 175,000 jobs added in March following February's gain of 235,000.

More broadly, data on US consumer and business confidence has outpaced hard data on economic activity in recent months. This reading indicates that raw materials inventories are contracting.

Economist polled by Thomson Reuters had expected the ISM non-manufacturing index to hit 57 in March.

Measure of business activity fell to 58.9 from 63.6. A gauge of factory employment jumped to its highest reading since June 2011.

The ISM's prices index rose 2.5 percentage points in February to 70.5, the highest reading since May 2011, indicating higher raw materials prices for the 13th straight month.

The recent pickup in manufacturing has been a bright spot for the USA economy during a first quarter otherwise marked by tepid gains in household spending, the biggest part of gross domestic product. Construction spending increased 3.0 percent from a year ago.

In a separate report, the Commerce Department said construction spending increased 0.8 percentage points in February, its highest level since April 2006, after falling 1% in January. In February, public construction spending rebounded 0.6 percent after three straight months of decreases. The employment component is especially worrying, with a plunge from 55.2 to 51.6 points. Rates fell last week for the second week in a row with a 30-year, fixed-rate average sliding to 4.14 percent, according to a report by Freddie Mac, the Federal Home Loan Mortgage Corp. Outlays on state and local government construction projects rose 0.9 percent.

  • Zachary Reyes