Manufacturing in the U.S. expanded in March at the slowest pace in almost two years, restrained by the perfect storm of a stronger dollar, a plunge in oil prices and lingering delays in shipments from West Coast ports.
The Institute for Supply Management’s index declined to 51.5, the weakest since May 2013, from 52.9 a month earlier, the Tempe, Arizona-based group’s data showed Wednesday. The gauge has fallen five straight months, the longest such stretch since the end of 2008. Another report showed hiring is cooling with the economy.
“We’re getting the impact from slower foreign demand,” said Jim O’Sullivan, chief U.S. economist at High Frequency Economics in Valhalla, New York, who accurately forecast the ISM reading. First-quarter “economic growth is adding up on the weak side.”
A stronger dollar that’s made U.S. goods more expensive overseas and a reduction in capital spending tied to the collapse in oil prices have hampered manufacturers, which represent about 12 percent of the economy. The reopening of supply lines with the resolution of the port dispute and early signs of a pickup abroad indicated U.S. factories may soon gain some traction.
As households grow more confident and shipping backlogs at West Coast ports are alleviated after the recent work stoppage, there’s a “distinct possibility for an uptick, an upswing in momentum as we go forward,” Bradley Holcomb, chairman of the ISM Manufacturing Business Survey Committee, said on a conference call with reporters.
A pickup in March motor vehicle sales signals consumers are still spending, according to automakers’ reports Wednesday. Purchases jumped to 17.1 million, the fastest pace in four months, from a 16.2 million rate in February, based on Ward’s Automotive Group data.
Stocks fell, after the Standard & Poor’s 500 Index’s ninth straight quarterly advance, amid declines for a second day in health-care and industrial companies. The S&P 500 dropped 0.4 percent to 2,059.69 at the close in New York.
Factory reports overseas were more encouraging, raising the prospect that the slowdown in growth abroad is abating.
U.K. manufacturing grew in March at the fastest pace in eight months and euro-area factories expanded faster than initially estimated, helped by growth in Spain and Italy and a stronger performance in Germany.
A gauge in China rebounded in March, suggesting stimulus efforts have started to bolster factories in the world’s second-largest economy.
Ten of 18 U.S. manufacturing industries in the ISM survey expanded in March, led by makers of paper, wood products and transportation equipment. Fabricated metal, apparel and petroleum were among seven industries that said business contracted.
Readings above 50 indicate growth and the median forecast in a Bloomberg survey of economists was 52.5. Estimates ranged from 49.5 to 55.
The ISM’s gauge of new orders declined to the lowest level since May 2013, while order backlogs dropped and production was little changed.
The measure of export orders contracted for a third month. The ISM’s U.S. factory employment index declined to 50, also the lowest since May 2013.
Companies added fewer workers than forecast in March, according to a private report. Employment climbed 189,000, the smallest gain since January 2014, after a 214,000 gain in the prior month, the ADP Research Institute said. Factories reduced payrolls by 1,000 last month, according to the group.
Businesses are starting to slow the pace of hiring as the economy started to cool. Labor Department data on Friday are projected to show employers added almost a quarter million workers to payrolls in March.
“Job growth took a step back in March,” Mark Zandi, chief economist at Moody’s Analytics Inc. in West Chester, Pennsylvania, said in a statement. Moody’s produces the figures with ADP. “The fallout from the collapse in oil prices and surge in value of the dollar is hitting the job market. Despite the slowdown, underlying job growth remains strong enough to reduce labor market slack.”
A slowdown in exports and depressed commodity prices are straining some companies, such as U.S. Steel Corp. The nation’s second-largest steelmaker said in a statement Tuesday that it will temporarily idle some capacity at a Minnesota iron-ore plant, effective June 1.
“Global influences in the market, including a high level of imports, unfairly traded products and reduced steel prices, continue to have an impact,” the company said.
Foreign exchange rates are also making it tougher for manufacturers as a rally in the dollar makes U.S. goods more expensive for overseas customers. The greenback has climbed almost 25 percent since June 30.
Oil prices that have slumped about 55 percent since the end of June are taking a toll on equipment manufacturers as well, reducing orders. The number of rigs targeting oil in the U.S. has dropped 49 percent since the end of October.
Factories are also struggling with lackluster consumer demand, though a pickup in sentiment and employment gains may allow manufacturing to stabilize.
Household purchases barely rose in February, a report from the Commerce Department showed Monday. The 0.1 percent gain followed a 0.2 percent drop in January. Adjusting for changes in prices, spending fell for the first time in almost a year.
A report Tuesday from the Conference Board showed consumer confidence climbed to 101.3, the second-highest reading of the current economic expansion, from 98.8 in February. The rebound bolsters forecasts that spending, which accounts for almost 70 percent of the economy, will strengthen.