Factories Hire, But Inflation Fears Loom
By Amanda Cooper
NEW YORK (Reuters) - U.S.
industry flourished in March as hiring reached the highest level
since late 1987, but manufacturers were concerned over the high
cost of raw materials and a weaker dollar, a report showed on
The Institute for Supply Management said the factory sector chugged
along at its best clip in nearly 20 years in March.
The employment component of ISM's nationwide manufacturing survey
shot up last month, confounding expectations of a pull-back. A
separate Labor Department (news - web sites) report said new claims
for unemployment benefits slipped last week, adding to hopes that
Friday's March employment report will show employers are finally
The surprisingly large increase in factory employment stoked expectations
for a bigger rise in workers on U.S. payrolls, which battered
Treasuries and boosted Wall Street stocks and the dollar.
"With the payroll number coming out tomorrow there's probably
anticipation that maybe the expectations for payroll growth could
be a little too low right now," said Gary Thayer, chief economist
at AG Edwards & Sons in St. Louis.
Economists polled by Reuters are forecasting a modest rise of
103,000 in Friday's payrolls report, having been caught off guard
for months on end by weaker-than-expected gains.
The headline ISM manufacturing index rose to 62.5 in March from
61.40 in February, marking the 10th monthly expansion and outstripping
analysts' expectations of a fall to 60.0.
JOBLESS CLAIMS FALL
Separately, the Labor Department said first-time claims for state
unemployment insurance slipped 3,000 to 342,000 in the week ended
March 27 from a revised 345,000 the prior week, suggesting mild
improvement in the labor market.
Economists had forecast claims to rise by 1,000 from the 339,000
initially reported for the March 20 week. The upward revision
to the March 20 figures reflected the impact of annual changes
in how the data is adjusted for seasonal variations.
However, analysts said that given that the revisions were made
to the figures for the week in which the monthly payrolls survey
is conducted, this would support a bigger rise in payrolls than
Another report showed U.S. wholesale prices barely moved in February,
but the ISM's prices paid index rose to 86.0 in March from 81.5
the previous month as a result of soaring basic materials and
high energy prices.
U.S. stocks (^DJI - news) (^IXIC - news) rallied on the data,
which painted a picture of job creation consistent with economic
growth of near 4.0 percent, and gradually rising inflation, the
two factors the Federal Reserve (news - web sites) says would
merit a rate rise.
"The implication is that manufacturing is racing ahead a
lot faster than people give it credit for and that's no April
fool's joke," said Ken Mayland, president of Clearview Economics
in Pepper Pike, Ohio. "A cyclical rebound of manufacturing
is swamping outsourcing, but all this comes at a price and the
price is higher prices."
PRICES STALLED IN FEBRUARY
The Labor Department said a sharp slowdown in energy price gains
and a fall in the cost of light trucks helped keep wholesale prices
under wraps in February, although this trend seemed to reverse
in March, according to the ISM report.
"We have some real challenges when it comes to materials.
We have a lot of metals on the short supply list. This has kind
of caught everybody," said Norbert Ore, head of the ISM survey
The Producer Price Index (news - web sites), which
measures prices paid to farms, factories and refineries, rose
just 0.1 percent in February. The increase marked a sharp slowdown
from January's 0.6 percent rise and came in well below the 0.4
percent advance expected on Wall Street.
Excluding food and energy, producer prices rose
by 0.1 percent, versus January's 0.3 percent gain.
The PPI (news - web sites) report showed energy
costs rose 0.2 percent in February after a steep 4.7 percent climb
a month earlier. While energy prices moderated, food prices rose
0.2 percent after a 1.4 percent plunge in January.
Some economists have expressed concern that sharp
increases in commodity prices are offering an inflation warning
sign. Others say inflation at the retail level is unlikely to
flare while the U.S. labor market is still quite weak, although
Thursday's report could eventually cancel out this argument.
Higher raw material prices and a slow-down in residential
building also caused spending on new construction to ease in February,
the U.S. Commerce Department (news - web sites) said.
It said total spending fell 0.1 percent to a seasonally
adjusted annual rate of $921.11 billion from a downwardly revised
$922.23 billion in January, marking the second monthly decline.
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