The Institute for Supply Management said Monday that its index of factory activity slipped to 51.3 per cent. The index fell from 54.2 per cent in February, which was the fastest growth since June 2011.
A reading above 50 indicates expansion. The index has signalled growth for four straight months. But the drop in March growth was bigger than economists expected.
Jennifer Lee, senior economist at BMO Capital Markets, said in a note to clients that the March decline might be the first sign that companies are worried about federal spending cuts that took effect on March 1.
But Joshua Shapiro, chief U.S. economist at MFR Inc., cautioned that the index's drop last month might just be a one-month blip. Combined, the ISM reports for the first three months of 2013 "suggest that the manufacturing sector is now making moderate headway."
In addition to faster hiring, new export orders grew faster in March than February.
The ISM said the index was consistent with an annual rate of economic growth 3.3 per cent from January through March, up from a tepid 0.4 per cent growth rate the last three months of 2012.
Reports Monday showed manufacturing is on the upswing in China and Japan, the second- and third-largest economies in the world.
Growth in China's manufacturing picked up in March, according to a survey by the China Federation of Logistics and Purchasing. And Japanese manufacturers are more upbeat about business conditions than they were last year, according to the Bank of Japan's "tankan" index for the March quarter.
The U.S. economy has proven surprisingly resilient in the face of tax increases that took effect in January and federal budget cuts that began to kick in March 1.
The government reported Friday that U.S. consumers increased spending in February as their incomes jumped. The University of Michigan's consumer sentiment index showed that Americans were feeling more confident about the economy at the end of March.
Underlying the improvement is a strengthening job market. Employers have been adding 200,000 jobs a month since November, twice the pace from last spring. Unemployment fell in February to 7.7 per cent, lowest since December 2008.
Economists expect about the same level of job growth in March.