Manufacturing index shows contraction in March

A trade group's measure of the health of the U.S. manufacturing sector contracted for the 14th straight month in March, and while the pace of decline was slower than expected, any pickup in jobs is still highly unlikely before next year. The Institute for Supply Management said Wednesday its manufacturing index rose to 36.3 last month from 35.8 in February. Economists surveyed by Thomson Reuters expected the index to rise to 36. A reading below 50 signals contraction. The index hit a 28-year low of 32.9 in December. The report, based on a poll of the Tempe, Arizona-based trade group of purchasing executives, covers indicators including new orders, production, employment, inventories, prices, and export and import orders. The report said declines in new orders and employment persisted, but slowed a bit. Still, none of the 18 manufacturing industries grew in March. "Momentum in manufacturing is still very much downward, but the rate of decline is slowing," said Norbert Ore, chair of the ISM manufacturing survey committee. New orders rose to 41.2 — the first reading above 40 in seven months. Six industries, including computer and electronic products, said orders grew. While not calling the ISM report encouraging, "the index has eked out gains for three consecutive months and this could well be a signal that the rate of contraction in manufacturing activity has peaked," said John Ryding, chief economist of RDQ Economics. The pickup in new orders may be a sign that businesses' "massive inventory liquidation" is starting to reach the end, he added. Manufacturers still think their customers' inventories are too high. That index rose for the eighth straight month to 54 in March from 51 in February. The winding-down of inventories to healthy level is at least three months away, Ore said. "At that point, I would expect to see new orders possibly start to show some strength, and then it's a number of months before you see any improvement in employment," he said. "It's going to be long and it's going to be slow." The employment index inched off its record low of 26.1 in February to 28.1 percent in March, but none of the 18 industry sectors said their labor forces grew last month. Manufacturers will not likely start adding more jobs to their rolls until 2010, Ore said. According to the Labor Department, the number of unemployed people in the manufacturing sector in February rose to 1.8 million — or 11.5 percent of that work force — from 820,000, or 5 percent, at the same time in 2008. More mass layoffs in the manufacturing sector were announced this week. 3M Co., the maker of Scotch tape, Post-It Notes and other products, said Tuesday it's cutting another 1,200 jobs, or 1.5 percent of its work force, because of the global economic slump. Fewer than half the jobs will be in the U.S., but include "several hundred" in its home state of Minnesota, a company spokeswoman said. The 1,200 figure includes cuts made earlier in the first quarter and follow more than 2,400 positions that 3M eliminated worldwide during the fourth quarter. Rising unemployment nationwide — currently at 8.1 percent — is swamping consumer demand for U.S. goods, while strapped corporations cut capital budgets. Meanwhile, recessions in Europe and plunging growth in Asia are slowing U.S. exports. To help counter plunging economic activity in the private sector, the U.S. government plans to spend billions on infrastructure projects. The ISM report said that five of the industries surveyed expect to gain from the government's economic stimulus measures. Any manufacturer with a connection to infrastructure projects could benefit, such as those that supply metals for bridges, electronic components used in construction and mineral products like glass, stone and concrete, Ore said. However, Ryding said the impact of the stimulus measures would be small. "It needs to be a 2009 story ... but a lot of the so-called stimulus package doesn't occur until beyond 2010," he said.