US factory activity declines; construction spending gains

Published: April 02, 2018 22:30:33


US factory activity slowed in March amid a decline in new orders, but growth in the manufacturing sector remains underpinned by strong domestic and global economies.

Other data on Monday showed a marginal increase in construction spending in February. The reports support economists’ view that economic growth slowed in the first quarter. Economic growth in the first three months of the year tends to be weak because of a seasonal quirk.

The Institute for Supply Management (ISM) said its index of national factory activity fell to a reading of 59.3 last month from 60.8 in February. A reading above 50 in the ISM index indicates growth in manufacturing, which accounts for about 12 per cent of the U.S. economy.

The survey’s production sub-index fell 1.0 point to a reading of 61.0 in March. A gauge of new orders dropped to 61.9 last month from 64.2 in February. A measure of factory employment dropped 2.4 points to 57.3 in March.

Seventeen industries including fabricated metal products, computer and electronic products, machinery and chemical products reported growth last month. Apparel, leather and allied products was the only industry reporting a decrease.

Machinery manufacturers said the imposed tariffs on steel and aluminium imports were “causing panic buying, driving the near-term prices higher and leading to inventory shortages for non-contract customers.”

Miscellaneous manufacturers reported that “new tariffs are causing concern across the supply chain. Full impact will take a few weeks to reveal itself”, reports Reuters.

US President Donald Trump last month imposed tariffs on steel and aluminium imports to shield domestic industries from what he has described as unfair competition from other countries.

US financial markets were little moved by the data. In a separate report, construction spending edged up 0.1 per cent in February after being unchanged in January.

Economists polled by Reuters had forecast construction spending accelerating 0.5 per cent in February. Construction spending increased 3.0 per cent on a year-on-year basis.

February’s marginal increase in construction spending could have implications for first-quarter gross domestic product growth estimates, which are mostly below a 2 per cent annualised rate.

In February, spending on public construction projects tumbled 2.1 per cent, almost reversing January’s 2.3 per cent rise. February’s drop was the largest since June 2017.

Spending on federal government construction projects plunged 11.9 per cent, the biggest decline since October 2004, after surging 13.4 per cent in January.

State and local government construction outlays fell 1.0 per cent after rising 1.3 per cent in January.

Spending on private construction projects increased 0.7 per cent after falling 0.7 per cent in January. Outlays on private residential projects edged up 0.1 per cent to the highest level since January 2007. They rose 0.1 per cent in January.

Spending on nonresidential structures rebounded 1.5 per cent in February after dropping 1.7 per cent in the prior month.

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