The Commerce Department said construction spending picked up in February… (Paul J. Richards / AFP/Getty…)
WASHINGTON — Growth in the crucial manufacturing sector unexpectedly slowed in March as companies reported fewer new orders and less production compared with the previous month.
The Institute for Supply Management's widely watched purchasing managers index dropped to 51.3 last month compared with 54.2 in February. The reading, released Monday, came in below analyst expectations of about 54.
A reading above 50 indicates growth in the sector, which covers a wide variety of industries.
Separately, the Commerce Department said Monday that construction spending picked up in February — another boost for the economy — as home builders moved to address the growing demand and shortage of supply in the housing market.
The value of public construction also rose in February from January, offering hopeful signs that state and local government spending may be stabilizing even as federal budget cuts start to take hold.
For manufacturing, March was the fourth straight month of growth after a slight contraction in November, ISM said. The index had been on the upswing until last month.
Purchasing managers' comments highlighted by ISM indicated that reduced government spending and uncertainty about federal regulations were among the reasons for the March slowdown.
The figure for March was slightly below the 12-month average of 51.7.
The index for new orders was down 6.4 points to 51.4 last month. The production index also dropped significantly, to 52.2 from 57.6, in February.
But U.S. factories continued to expand their hiring, ISM said. The employment index rose 1.6 points to 54.2 and marked the 42nd straight month of additional hiring.
Of the 18 industries the index tracks, just three reported contraction in March — petroleum and coal, chemicals and machinery.
The story was much different in the construction market.
Overall, private and public construction spending rose 1.2% in February from January to a seasonally adjusted annual rate of $885.1 billion, the Commerce Department reported Monday. That's slightly better than what most analysts had forecast, and it came after a 2.1% drop in January.
Private construction spending increased 1.3% in February, to $613 billion. That's up 12.6% from a year earlier but far below the pre-recession level in excess of $900 billion.
Builders are racing to put up more homes in light of rising home prices and the dwindling inventory of properties for sale. Spending for private residential construction, on the strength of single-family homes, reached an annual rate of $303.4 billion in February, up 2.2% from January and 20.1% from February 2012.
The gain in public construction in February was powered by spending on highways, transportation structures and utilities. Apart from the continued decline in spending for school construction, analysts took heart in what appeared to be improved spending by local governments.
"With sequester budget cuts beginning to sink in," wrote Barclays Bank analyst Peter Newland, "federal outlays are likely to fall further, but the apparent stabilization in state and local outlays is an encouraging sign that the public sector will likely not be the drag on construction activity it has been in recent years."