Manufacturing contracts again in March: ISM

1/04/2008 - 15:08

NEW YORK (Reuters) - Factory activity contracted for a second straight month in March, according to a report on Tuesday that also renewed worries about inflation, even as the economy appeared gripped by recession.

The Institute for Supply Management said its index of national factory activity edged up to 48.6 in March from 48.3 in February, but was still below the level of 50 which separates growth from contraction. It was the third time in four months the gauge has shown contraction.

Meanwhile, the survey's measure of inflation jumped to its highest since the immediate aftermath of Hurricane Katrina in 2005, when energy prices soared.

"The ISM manufacturing index gave a choppy sideways picture of manufacturing which is better than might have been feared but doesn't give conclusive indication whether export strength will sustain overall activity in the face of domestic spending," said Pierre Ellis, senior economist at Decision Economics in New York.

"That kind of offset is critical to keep the recession relatively mild."

Wall Street cheered the report, however, since the reading on manufacturing was higher than the 47.5 foreseen in a Reuters poll of economists.

Stocks rose and the dollar also extended its gains versus the euro and yen after the ISM data. Prices on government bonds, which are generally hurt by inflation and economic strength, fell to the session's lows.

The signs of worsening inflation came from the ISM's prices paid index, which jumped to 83.5 in March -- its highest since October 2005 -- from 75.5 in February.

The manufacturing employment index rose to 49.2 in March from 46.0 in February.

The new orders index slipped to 46.5 in March from 49.1 in February. The new orders index was at its lowest since October 2001, when the economy was still mired in recession.

(Reporting by Burton Frierson, Editing by Chizu Nomiyama)

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