ISM Manufacturing Index Shows Expansion in March

Andrew Klips |

Stocks are moving higher again on Tuesday, including the S&P 500 pressing on a new record high and the Dow Jones Industrial Average printing a seven-week high against the backdrop of a report showing the U.S. manufacturing accelerated again in March.

The Institute for Supply Management reported that its manufacturing index, a measure of activity at the nation’s factories, increased to 53.7% in March from 53.2% in February. Readings over 50 indicate expansion in the sector, while below show contraction. Economists were predicting a slightly better reading of 53.9%.

March’s increase represented the tenth straight month of readings over 50%, but it still trails the 57.0% mark in November, which was the highest level for the index since April 2011. The 53.7% reading for March is in line with the 53.9% that the ISM index averaged in 2013.

The forward-looking new orders index climbed by 0.6 percentage points from February’s reading to 55.1%, lending optimism about future demand.

The production index helped the headline figure grow, reversing course after three consecutive months on slowing growth with a 55.9% reading in March. In February, the production index was in contraction territory at 48.2%.

The employment index showed growth, but at a slower rate than the month prior, declining 1.2 percentage points to 51.1%. Other cautionary notes came in the form of the suppliers deliveries index and customers’ inventories index both declining by 4.5 percentage points to 54.0 and 42.0, respectively. The customers’ inventories index has been below 50 for 28 straight months.

14 of the 18 manufacturing industries reported expansion in March, led by petroleum and coal products, transportation equipment and furniture and related products. The four industries that reported contraction in March were led by apparel, leather & allied products, followed by wood products.

Most of the respondent comments were positive in the report, including:

"Business beginning to heat-up, along with the weather,” from a Petroleum & Coal Products company and "Year starting off very good. Outlook very bright for 2014,” from a Computer & Electronic Products company.

Elsewhere, conflicting reports were delivered on manufacturing in China for March. The official Chinese manufacturing index inched ahead from 50.2 in February to 50.3.  However, the HSBC PMI, which is a broader measure because it includes small manufacturers showed a decline to 48.0 in March from 48.5 a month earlier, it’s weakest reading since September 2012.

Just after noon, stocks are trading off highs of the day, but still green for the day. The Dow is up 46 points, the S&P 500 is ahead by 5 points and the Nasdaq has jumped 45 points.

DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not represent the views of equities.com. Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to: http://www.equities.com/disclaimer

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