BUSINESS

US manufacturing grew in March at slower pace; factories report drag from falling oil prices

04/01/2015 11:14 EDT | Updated 06/01/2015 05:59 EDT
WASHINGTON - U.S. factories expanded last month at a weaker pace, with orders growing more slowly and hiring essentially flat.

The Institute for Supply Management, a trade group of purchasing managers, said Wednesday that its manufacturing index slipped to 51.5 in March from 52.9 in February.

It was the fifth straight drop. Still, any reading above 50 signals expansion.

U.S. manufacturers have faced a drag in recent months from falling oil prices, a rising dollar, winter storms and a since-resolved shutdown of West Coast ports that has created a backlog of shipments.

Some drilling rigs have stopped as oil prices have fallen more than 50 per cent since June to below $50 a barrel, curbing demand for pipelines and machinery from factories. Simultaneously, the dollar has risen in value against the euro and other currencies, making American-made goods more expensive abroad and cutting into exports.

Demand for exports has been contracting — rather than expanding — for the past three months, according to the survey.

A "stronger dollar and soft overseas demand are still an obstacle for export-orientated producers," said Paul Ashworth, chief U.S. economist at Capital Economics, who added that the slowdown wasn't "alarming" because non-manufacturing companies still appear to be faring well.

Still, there is the expectation that manufacturing will rebound as the impact of the winter weather and port shutdowns fade. Production improved slightly between February and March, a sign that growth may accelerate in the spring.

"We're well positioned for the distinct possibility of an uptick, an upswing, in momentum as we go forward, not unlike last year when started with a particularly harsh winter," said Bradley Holcomb, chairman of the ISM's manufacturing business survey committee.

One paper products manufacturer said in the survey that business is starting to improve as it's "thawing out of this crazy winter."

Out of 18 manufacturing industries, 10 reported growth and seven reported an outright decline in March. Among the sectors that declined are apparel, textiles, petroleum and coal, electrical equipment, plastics and rubber products and furniture.

"In balance, we're still positive," said Holcomb, adding that "every (sector) gets weighted relative to their contribution" to gross domestic product.

Multiple other reports show that manufacturing has downshifted in recent months.

Orders for long-lasting goods dropped in February, the third decline in four months, the Commerce Department reported last week.

Falling demand for commercial aircraft, autos and machinery caused durable goods orders to drop 1.4 per cent in February.

Factory output also tumbled in February, the Federal Reserve reported this month. The 0.2 per cent decline was led by drops in the production of autos, machinery, appliances and primary metals such as steel.