Activity in the U.S. manufacturing sector expanded at a much slower than expected rate in the month of March, according to a report released by the Institute for Supply Management on Monday.
The ISM said its purchasing managers index fell to 51.3 in March from 54.2 in February, although a reading above 50 indicates continued growth in the manufacturing sector.
While the index pointed to the fourth consecutive month of growth in the manufacturing sector, economists had expected a much more modest decrease to a reading of 54.0.
Jennifer Lee, senior economist at BMO Capital, said, "This could be the first sign that the impact of U.S. government budget cuts could be impacting business/manufacturing activity."
The much bigger than expected decrease by the headline index reflected notable slowdowns in the pace of new orders and production growth.
The new orders index plunged to 51.4 in March from 57.8 in February, while the production index tumbled to 52.2 from 57.6.
The supplier deliveries index and the inventories index both dipped by 2 points to 49.4 and 49.5, respectively. The readings below 50 indicate contractions.
On the other hand, the employment index climbed to 54.2 in March from 52.6 in February, suggesting a faster rate of job growth in the manufacturing sector.
The increase lifted the employment index to a nine-month high, while the reading above 50 pointed to the forty-second consecutive month of job growth.
With regard to inflation, the prices index dropped to 54.5 in March from 61.5 in February, indicating a notable slowdown in the pace of price growth.
On Wednesday, the ISM is scheduled to release a separate report on service sector activity in the month of March. The index of activity in the service sector is expected to come in unchanged compared to the previous month at 56.0.
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