US Manufacturing Remains in Sharp Contraction

ISM data for March shows US Manufacturing contracted for a 14th month as recession continues. The Manufacturing index reported higher at 36.3, slightly above the previous 35.8 figure in February; economists surveyed by Bloomberg had expected a small rise to 36.0. Despite the second consecutive month of improvement, the index reported below 40 for the fifth months signaling significant contraction in key industrial sectors. Also, the ISM’s measure of prices paid by manufacturers rose slightly to 31 from 29. The rise points to stability follow sharp declines in the wake of the commodity bust and the onset of the financial crisis in the second half of 2008. The US recession now enters its 17th month, the worst recession since the early 1930s. While improvements in the ISM index are greeted with optimism, recovery and gradual improvement in manufacturing remain far off. Employers continue to cut jobs, with the total losses at over 4.4 million since the start of the recession, and production and capacity utilization continue to be scaled back as businesses fight to reduce inventories amid a serious downturn in demand. Inventories contracted at a sharper rate at 32.2 from 37.0 in the previous month.

US Construction Spending came in negative with a 0.9% decline for the month of February, adding to a string of contraction for the fifth month. The housing market continues to remain in difficulties as house prices continue to fall and sales remain historically low. Despite the fall however, the construction spending decline may be construed as positive following greater than 3% contractions in the past three months. Also, improvements in building permits and housing starts in February may help to alleviate the downward pressure in demand for construction going forward.