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  The ISM Manufacturing Index Increased to 53.7 in March from 53.2 in February
Posted Under: Data Watch • ISM
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Implications: Just like the temperature, the ISM index, a measure of manufacturing sentiment around the country, continued to move higher in March. While not as strong as the levels we saw in mid-to-late 2013, the index has stood in expansion territory for ten consecutive months, and we expect the index to continue to show strength as the final ice thaws and companies ramp up production to make up for time lost to bad weather. The production index, which dropped 6.6 points in February due to the harsh weather conditions, showed a full recovery in March, jumping 7.7 points to 55.9. At the same time, the new orders index rose to 55.1, a three-month high. According to the Institute for Supply Management, an overall index level of 53.7 is consistent with real GDP growth of 3.5% annually. Given other data, we think real GDP growth will be noticeably slower in Q1, but will rebound in Q2. On the inflation front, the prices paid index fell slightly to 59.0 in March from 60.0 in February. Still, little sign of inflation, but we don't expect this to last given loose monetary policy. The employment index declined to 51.1 in March from 52.3 in February, but plugging today's data into our model, we're still forecasting respectable gains of 205,000 for both nonfarm and private payrolls. (Wednesday's ADP employment index and Thursday's data on unemployment claims may alter this forecast slightly.) In other news this morning, construction eked out a 0.1% gain in February despite the brutal weather (+0.3% including revisions to prior months). The gain in February was led by commercial construction, particularly power plants, communication facilities, and hotels. Residential construction declined 0.8%, but we expect a sharp rebound next month due to a return to normal weather patterns and strong underlying fundamentals for this sector of the economy.

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