(Source: Institute for Supply Management)
(Source: Institute for Supply Management)

U.S. manufacturing continued to expand moderately in March, adding to other signs that the economy is starting to shake off the impact of a harsh winter that hurt growth in the beginning of the year.

The purchasing managers’ index rose to 53.7 percent from 53.2 in February, according to a monthly report released Tuesday by the Institute for Supply Management. It was the 10th consecutive month that the reading was above 50, which indicates expansion.

Although the index was slightly lower than expected and well below the strong numbers posted in last year’s end, economists said it is still encouraging.

“It confirms the idea that manufacturing weakness in the first quarter is really due to severe weather.” said Daniel Meckstroth, chief economist at Manufacturers Alliance for Productivity and Innovation. “It suggests that there is nothing fundamentally wrong with manufacturing, so we can see relatively strong growth over the next six months.”

The coming spring is good news for Omnova Solution Inc. The Ohio-based chemical manufacturer posted a small increase in profits in its first quarter report, but noted that weather disruptions had caused it $1.5 million more in operating costs.

“Weather was an big issue for us,” said Sandi Noah, Omnova’s spokeswoman. “Some plants were closed temporarily, and shifts were cancelled. We would hope when those situations pass, growth would follow.”

Most industries reported growth, such as petroleum products, transportation equipment, machinery and electronic products, but industries such as apparel and wood products contracted.

Among the ISM sub-indexes, the production index, which fell to its lowest level in five years because of weather related disruptions, bounced back from 48.2 to 55.9 percent, the largest month-over-month increase since June 2009. The new orders index increased to 55.1 from 54.5. The exports index rose to 55.5 from 53.5. The gauge of order backlogs was 57.5 percent, 5.5 percent higher than the reading in February.

Hiring, however, slowed down last month. The employment index fell to 51.1 in March from 52.3 in February. But with the high level of production and backlog orders, economists predicted the number is going to pick up soon.

“The decline in the employment is just a lagging component,” Peter Newland, an economist at Barclays. “We have this sharp rise in production and backlog. To catch up with that, the employment should rebound.”

Auto sector and construction also picked up. Auto sales rose 5.7 percent in March to 1.54 million vehicles, better than expected. Construction spending was up 0.1 percent.

These positive signs encouraged investors. The Standard & Poor’s 500 hit record high on Tuesday, closing at 1,885.52 point. The Dow Jones rose 74.95 points, or 0.5 percent, to 16,532.61. The Nasdaq rose 69.05 points, or 1.6 percent, to 4,268.04.

The government’s employment report, which will be released on Friday, will be another closely watched event to determine if the economy is recovering from the winter slowdown. ADP, a payroll firm that conducts its own employment surveys, says the manufacturing sector added 5,000 jobs in March. Non-farm private sector employment increased by 191,000, it said, a slightly better forecast than last month labor report.


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