Factory gains slowed, group reports

U.S. factories expanded at a robust yet slightly slower pace in March, and tariffs helped drive a measure of raw-material prices to an almost seven-year high, data from the Institute for Supply Management showed Monday.

The Institute for Supply Management, a trade group of purchasing managers, reported Monday that its manufacturing index slipped to 59.3 last month from February’s reading of 60.8, which had been the highest since 2004. Any score above 50 signals growth.

The institute’s measure of new orders fell from 64.2 in February to 61.9, the lowest since August.

Its prices-paid index rose for a fourth straight month. It reached 78.1, the highest since April 2011, from 74.2.

A measure of customer inventories dropped to the lowest since July 2011, and a gauge of backlogs held at an almost 14-year high. Those measures indicate that factories continue to have trouble keeping up with demand from consumers and businesses, while paying higher prices for raw materials.

Some of the rising costs were attributed to President Donald Trump’s tariffs on imported steel and aluminum, with one respondent in the machinery sector saying that “panic buying” is also resulting in shortages for some customers. Timothy Fiore, chairman of the institute’s manufacturing survey committee, said about 32 percent of comments related to tariff concerns and that businesses began stocking up in response to the tariff announcement.

“The reason the price index went up this month was primarily because of the tariffs,” Fiore said of the March results. Many of the concerns were less about trade wars and more focused on whether the tariffs would limit availability around production schedules, he said.

Even so, the figures are consistent with expectations of further gains in manufacturing production in the coming months, and the main index remains near its highest level since 2004. While a measure of factory payrolls softened, the underlying details of the institute’s report bode well for employment. The Labor Department’s March jobs report is due later this week.

“The details of the March data point to the steady growth in the factory sector seen over the past several quarters being sustained,” said Richard Moody, the chief economist at Regions Financial.

Seventeen of 18 industries reported growth in March, led by fabricated metal products and plastics and rubber products. Apparel was only sector to report a decline.

The institute’s index of backlogs held at 59.8, the highest level since May 2004, while the measure of production eased from 62 to 61.