Manufacturing in U.S. expands at slowest pace since 2013

WASHINGTON – Factories expanded in March at the slowest pace since May 2013, a sign struggling overseas economies and cutbacks among oil producers are hindering U.S. manufacturing.

The Institute for Supply Management’s index declined to 51.5 from 52.9 a month earlier, the Tempe, Ariz.-based group’s report showed Wednesday. Readings above 50 indicate growth and the median forecast in a Bloomberg survey of economists was 52.5.

A measure of U.S. exports contracted for a third month, indicating a stronger dollar is making it difficult for factories to drum up overseas sales. Less investment by America’s energy producers and slower consumer spending so far this year also represent hurdles for domestic manufacturers.

“There’s no question manufacturing has weakened in the past few months,” said Jim O’Sullivan, chief U.S. economist at High Frequency Economics in Valhalla, N.Y., who accurately forecast the ISM reading. “We’re getting the impact from slower foreign demand and the stronger dollar.”

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Stocks fell, after the Standard & Poor’s 500 Index’s ninth straight quarterly advance, amid declines for a second day in health-care and industrial companies. The S&P 500 dropped 0.5 percent to 2,057.32 at 12:44 p.m. in New York.

Residual effects from a work stoppage at West Coast ports, that has since been resolved, are still affecting supply chains for some manufacturers as dockworkers scramble to work through what was the biggest backlog of ships in a decade.

Stronger dollar

Respondents in the March survey mentioned “continuing challenges from the West Coast port issue,” along with “challenges associated with the stronger dollar on international business,” Bradley Holcomb, chairman of the ISM Manufacturing Business Survey Committee, said on a conference call with reporters.

At the same time, rising consumer confidence, the resolution of the slowdown at the ports and more seasonable weather indicate there’s a “distinct possibility for an uptick, an upswing in momentum as we go forward,” Holcomb said.

Another report Wednesday, from Markit Economics, showed manufacturing expanded in March at the fastest pace in five months as orders improved.

Factories overseas showed signs of stabilizing last month. U.K. manufacturing grew by the most in eight months, while an index of euro-area producers was the strongest since May 2014, according to Markit.

Industry breakdown

Ten of 18 U.S. manufacturing industries expanded in March, led by makers of paper, wood products and transportation equipment. Apparel makers and petroleum producers were among seven industries that said business contracted.

Estimates for the factory index from 80 economists in the Bloomberg survey ranged from 49.5 to 55.

The ISM’s gauge of new orders declined to 51.8 last month, the weakest since May 2013, from 52.5 in February. Order backlogs dropped to 49.5 from 51.5. The production measure was little changed at 53.8 after 53.7 in February.

The measure of export orders dropped to 47.5 in March from 48.5. The ISM’s U.S. factory employment index declined to 50, the also the lowest since May 2013, from 51.4 the prior month.

March employment

Companies added fewer workers than forecast in March, according to a private report. Employment climbed 189,000, the smallest gain since January 2014, after a 214,000 gain in the prior month, the ADP Research Institute said. Factories reduced payrolls by 1,000 last month, according to the group.

The report also showed the gauge of factory inventories dropped to 51.5 in March from 52.5. An index of prices paid rose.

A slowdown in exports and depressed commodity prices are straining some companies such as U.S. Steel Corp. The nation’s second-largest steelmaker said in a statement Tuesday that it will temporarily idle some capacity at a Minnesota iron-ore plant, effective June 1.

“Global influences in the market, including a high level of imports, unfairly traded products and reduced steel prices, continue to have an impact,” the company said.

Foreign exchange rates are also making it tougher for manufacturers as a rally in the dollar makes U.S. goods more expensive for overseas customers. The greenback has climbed almost 25 percent since June 30.

Oil prices that have slumped about 55 percent since the end of June are taking a toll on equipment manufacturers as well, reducing orders. The number of rigs targeting oil in the U.S. has dropped 49 percent since the end of October.

Consumer spending

Factories are also struggling with lackluster consumer demand as well, though a pickup in sentiment and employment gains may allow manufacturing to stabilize.

Household purchases barely rose in February, a report from the Commerce Department showed Monday. The 0.1 percent gain followed a 0.2 percent drop in January. Adjusting for changes in prices, spending dropped for the first time in almost a year.

A report Tuesday from the Conference Board showed consumer confidence climbed to 101.3, the second-highest reading of the current economic expansion, from 98.8 in February. The rebound bolsters forecasts that spending, which accounts for almost 70 percent of the economy, will strengthen.

Americans were more upbeat about job and income prospects, and a report later this week is projected to show payrolls increased by almost a quarter million in March.

Cheaper fuel prices have also given households the wherewithal to boost spending. A gallon of regular unleaded gasoline cost an average $2.41 on Tuesday, down from last year’s peak of $3.70, according to U.S. motoring group AAA.

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