Markets Retreat After Unexpectedly Slow Manufacturing Growth

Manufacturing continued to expand in March, albeit at a slower rate than in February, according to the March 2013 ISM Report On Business. According to the Institute for Supply Management, the PMI registered 51.3 percent in March, a 2.9 point decline from February.

March’s PMI is disappointing to investors looking for an excuse to bid up the S&P 500. Economists were expecting manufacturing activity to edge just slightly downward from 54.2 in February to 54.0 in March. This makes the 2.9 point decline unexpectedly large and a negative catalyst for Monday’s markets. Overall positive news from the ISM report would have complimented the final Markit U.S. manufacturing reading for March, also released on Monday. Markit’s PMI index increased from 54.3 to 54.6, indicating a faster rate of expansion.

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One thing that both reports agree on is that the employment situation in the manufacturing industry is continuing to improve. The ISM Employment index increased 1.6 points to 54.2 in March while Markit’s employment index increased from 53.5 to 54.6. The two indexes share many of the same sub components, but weight them differently…

Bradley Holcomb, chair of the ISM Manufacturing Business Survey Committee, commented: “The past relationship between the PMI™ and the overall economy indicates that the average PMI™ for January through March (52.9 percent) corresponds to a 3.3 percent increase in real gross domestic product on an annualized basis. In addition, if the PMI™ for March (51.3 percent) is annualized, it corresponds to a 2.8 percent increase in real GDP annually.

Reuters reports that a string of positive real data has first-quarter GDP growth estimates coming in as high as an annualized 3.5 percent.

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The unexpectedly slow growth helped pull markets lower on Monday.

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