Cooling factory activity hints at slowing economy

Mon Apr 1, 2013 4:31pm EDT
 
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By Lucia Mutikani

WASHINGTON (Reuters) - Factory activity grew at the slowest rate in three months in March, suggesting the economy lost some momentum at the end of the first quarter as the effects of tighter fiscal policy started kicking in.

Data so far this year had shown little sign that higher taxes, and the $85 billion in across-the-board government spending cuts that took effect March 1 known as the "sequester," had weighed on economic activity.

"It suggests the economy was probably starting to slow at the end of the quarter, possibly reflecting the impact of the fiscal headwinds coming from sequestration and higher taxes," said Millan Mulraine, a senior economist at TD Securities in New York.

The Institute for Supply Management said on Monday its index of national factory activity fell to 51.3 last month from 54.2 in February. A reading above 50 indicates expansion in the manufacturing sector. New orders, a key indicator of future growth, accounted for much of the drop in the index.

The ISM report was at odds with a separate report showing that factories gained steam in March on strong order growth, closing out the best quarter for the sector in two years.

Financial data firm Markit said its Manufacturing Purchasing Managers Index rose to 54.6 last month from 54.3 in February. A reading above 50 indicates expansion.

While the two surveys use the same sub-indexes, they assign different weights to the components.

Economists and investors placed more emphasis on the ISM survey, which has a longer history and has been generally a good gauge of overall U.S. economic activity.   Continued...

 
Nathan Rogers works on the jet assembly line at Cessna, at their manufacturing plant in Wichita, Kansas March 12, 2013. REUTERS/Jeff Tuttle