Manufacturing grew more slowly than expected in March — a reminder of an uneven recovery, but a recovery nonetheless.
The influential Purchasing Managers Index (PMI) fell to 51.3 this month, down from 54.2 in February. The PMI measures activity in the manufacturing sector; a number above 50 indicates growth since the previous month.
“We’re still growing; we’re just not growing as fast,” said Brad Holcomb, chairman of the Institute of Supply Management (ISM) survey, which issues the PMI.
The recovery has been dragged down by recent cuts in government spending. “Military cutbacks are having an impact,” said Guy Lebas, director of fixed income strategy at Janney Montgomery Scott. “The decline of defense orders would hit the ISM relatively hard.” The cuts have fallen especially hard on defense-related sectors, such as transportation and aircraft parts.
New orders, a component of the PMI slowed significantly from the previous month, dropping to 51.4 from 57.8 in February.
But employment was 54.2, showing that manufacturers are stepping up hiring. Because a hiring increase is often the last step of a recovery, an uptick in jobs is a good sign for sustained future growth in the sector.
“That’s an expression of optimism and confidence for manufacturing as a whole,” said Holcomb.
Other indicators also suggest the manufacturing recovery is a long-term phenomenon.
New orders for durable goods, another indicator of manufacturing activity, have increased for five of the past six months. In February, the most recent month for which data is available, new orders rose 5.7 percent.
Increased consumer spending and a healing housing market both counteract the manufacturing slowdown from the cut in government spending.
Auto manufacturing continues to be strong, driven by steady consumer spending.
And as new home construction increases, appliance and furniture manufacturers have increased production.
Greg Mazur, product performance manager at Spectrum Industries, a Wisconsin manufacturer of wooden furniture, said an uptick in business over the past year has allowed the company to avoid seasonal cutbacks.
“In many years we’ve had to temporarily lay people off in winter, but we haven’t had to do that so much this year,” he said.
Mazur said he expects production to keep rising in 2013.
And it’s not only U.S. consumers who are spending more. A strengthening global economy is also a factor in the manufacturing increase, economists believe.
March exports increased even more from February, the ISM reported, and imports held steady.
“The global economy is alive and well and participating in a meaningful way,” said Holcomb.