Business Activity in U.S. Expanded at a Slower Pace in March

Business activity in the U.S. expanded in March at a slower pace than forecast, a sign the rebound in manufacturing will cool.

The MNI Chicago Report’s business barometer fell to 52.4 this month, the lowest level of the year, from 56.8 in February. A reading greater than 50 signals expansion. The median forecast of 48 economists surveyed by Bloomberg was 56.5.

Manufacturing, which makes up about 12 percent of the economy, may stabilize as some businesses wait for more evidence that sales will hold up in the face of across-the-board cuts in government spending. At the same time, rising consumer purchases led by automobile and home sales will help prevent a decline in investment and inventory rebuilding.

“We could get some short-term weakness,” Josh Dennerlein, an economist at Bank of America Corp. in New York, said before the report. “Some sectors like defense are really going to get beat up” due to the sequestration. Still, “the longer term outlook is much more positive.”

Estimates in the Bloomberg survey ranged from 54 to 57.9. This month’s 4.4-point drop was the biggest since May 2011.

Other reports today showed the economy grew at a faster pace than previously estimated in the fourth quarter and the number of claims for jobless benefits rose more than forecast last week.

Near Record

Stocks were little changed as the Standard & Poor’s 500 index approached a record. The S&P 500 climbed less than 0.1 percent to 1,563.57 at 9:59 a.m. in New York.

The Chicago employment measure declined to 55.1 from 55.7 in the prior month, today’s report showed.

The production gauge dropped to 51.8, the weakest reading since September 2009, from 60.2, and the index of new orders fell to 53 from 60.2.

The measure of backlogs slumped to 45 from 50.9. The gauge of inventories decreased to 41, the lowest since December 2009, from 50.1.

Factories are getting help from demand for autos. Cars and light trucks sold at a 15.3 million annual rate in February after a 15.2 million pace the prior month, Ward’s Automotive Group data showed.

Companies projecting a better outlook include Texas Instruments Inc. The largest maker of analog chips raised the lower end of its forecasts for first-quarter sales and profit as customers lift orders.

Demand ‘Stronger’

“In general, the stronger demand environment has continued,” Ron Slaymaker, vice president of the Dallas-based company, said on a March 7 conference call with analysts. “Quarter-to-date orders have been growing strongly.”

Economists watch the Chicago index and other regional manufacturing reports for an early reading on the national outlook. The Chicago group says its membership includes both manufacturers and service providers, making the gauge a measure of total growth. Its members have operations across the U.S. and abroad.

The Federal Reserve Bank of New York’s so-called Empire State measure showed manufacturing in the region expanded in March for a second month, and the Federal Reserve Bank of Philadelphia’s index also showed growth at factories.

The ISM’s monthly national factory index in March probably held close to the highest level in almost two years, according to the median forecast of economists surveyed ahead of the Tempe, Arizona-based group’s figures due on April 1.