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Ahead of the Bell: US manufacturing activity

April 2, 2012
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WASHINGTON—Increasingly confident U.S. consumers and businesses are spending more on cars, machinery and other goods, a trend that likely boosted manufacturing activity in March.

Economists forecast that the Institute for Supply Management's manufacturing index increased last month to 53.4, according to a survey by FactSet. That would be up from 52.4 in February. Readings above 50 indicate expansion.

The private trade group of purchasing managers will release the report at 10 a.m. Eastern on Monday.

Consumers increased their spending in February by the most in seven months, the government said Friday. That is raising expectations the economy will grow a bit faster in the current quarter.

Spending on long-lasting goods, such as cars and computers, rose 1.6 percent in February, the report said. That was double the overall gain and suggests manufacturers will have to increase output to meet higher demand.

Businesses also ordered more durable goods in February, after a steep drop the previous month. Durable goods are meant to last at least three years. Greater demand for machinery, computers, autos and aircraft drove the increase.

Orders for so-called "core" capital goods, a key measure of business investment plans, also rose. They had fallen in January by the most in a year, after an investment tax credit expired.

Manufacturing has been a key source of economic growth since the recession ended in June 2009. The sector has expanded for 31 straight months, according to the ISM's index.

A recovery in auto sales has been a big reason for the strength in manufacturing. Americans delayed auto purchases during the recession, pushing the average age of U.S. cars to record highs. That led to sharp increases in car sales as the economy recovered.

More auto manufacturing boosts output in an array of industries, including steel, tire makers, and other parts suppliers.

Rising factory output is helping the broader economy grow. Growth increased to a 3 percent annual rate in the final three months of last year, up from 1.8 percent in the previous quarter.

Manufacturing has also been a big source of hiring. The sector accounts for only about 9 percent of total payrolls but added 13 percent of the new jobs last year. Manufacturers have added 111,000 jobs in the past three months, about one-seventh of all net gains.

Many economists expect growth will slow in the current quarter because companies aren't likely to restock their shelves as much as they did in the fourth quarter. But after Friday's report on consumer spending, some analysts are boosting their estimates for growth in the January-March quarter to 2.5 percent, from 2 percent.

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