The ISM Manufacturing Index, which is a closely-followed survey of national manufacturers, slipped from a cyclical high of 61.4 in February to a still healthy 61.2 in March, roughly in line with most analysts’ forecasts. But the cost of raw materials remains a concern.
A reading of 50 suggests that goods producers are neither expanding nor contracting.
" The component indexes of the PMI remain at very positive levels and signal strong sector performance in the first quarter. While manufacturers are benefiting from strength in new orders and production, there is significant concern with regard to commodity prices,” Norbert Ore, chair of the Institute for Supply Management said.
“Many manufacturers indicate the prices they have to pay for inputs are rising, and there is concern about the impact of higher prices on their margins."
He states his case well.
Prices paid jumped from an already high 82.0 in February to 85.0, signaling that manufacturers continue to grapple with the high costs of materials. And regional surveys of the manufacturing landscape suggest firms are starting to have some success passing along higher prices.
Nonetheless, wages gains have been muted and excess slack still exists in the economy, which should limit shortages and bottlenecks and help keep core inflation under control, at least in the short term.
Meanwhile, manufacturers continue to enjoy a very robust recovery.
Production rose 2.7 points to a very strong 69.0, while a modest slowdown in new orders to a still solid 63.3 suggests that the rapid ascent in the recovery is peaking, and we may be settling into a strong but sustainable recovery in the goods-producing sector.
Overall, the manufacturing sector, which helped to pull the U.S. economy out of the worst recession in 70 years, continues to lead the expansion.
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