ISM: Factory Activity Slow in March

NEW YORK – U.S. factory activity ran at a three-month low in March, as new orders fell and a gauge of inflation showed a pick-up, according to a survey on Monday.

The Institute for Supply Management said its index of national factory activity fell to 55.2 in March from 56.7 in February, falling short of economists' forecasts for a rise to 57.9.

Regional manufacturing surveys have painted a more optimistic picture of the factory sector, so although the drop in the ISM index did catch some economists off-guard, it did not point to the start of a prolonged slowdown.

"This is something of a surprise, given the relative strength of most of the regional surveys. The latter are not always a perfect guide to the national ISM but they rarely send such a clear, but wrong, signal," said Ian Shepherdson, chief U.S. economist at High Frequency Economics.

A reading above 50 indicates growth in the factory sector. The ISM index has held above this level for about three years in a row now, but this was the lowest reading since December.

The new orders component, a gauge of future growth, fell to 58.4 from 61.9 in February, while the employment index dropped to 52.5 from 55.0 the month before.

"Overall it doesn't look too bad. The prices paid is a concern. We'd like to see it come down a little. It's an inflationary key," said Paul Nolte, director of investments at Hinsdale Associates in Hinsdale, Illinois.

Oil prices rose for much of March, but the cost of raw materials such as base metals also likely contributed to the increase in the prices-paid component, which rose to its highest in four months.

The prices paid index, which measures inflationary pressures within the factory sector, rose to 66.5 in March, from 62.5 in February.