Manufacturing in U.S. Expands at Close to Seven-Year High

Manufacturing in the U.S. expanded in March at close to the fastest pace in almost seven years, reinforcing signs the industry will propel growth in the world’s largest economy.

The Institute for Supply Management’s manufacturing index was little changed at 61.2, after February’s 61.4 reading that was the highest since May 2004, the Tempe, Arizona-based group’s report showed today. Figures greater than 50 signal expansion.

Companies like Caterpillar Inc. (CAT) and United Technologies Corp. (UTX) are benefiting as production, fueled by inventory rebuilding at the start of the recovery, gets an added boost from rising demand in the U.S. and overseas. The strength in manufacturing is also generating job gains, a necessary ingredient to a sustained expansion.

“Everything still looks good for manufacturing for the next few months,” Mike Montgomery, an economist at IHS Global Insight in Lexington, Massachusetts, said before the report. “Strong export orders are a very positive part of the story.”

Stocks extended gains and Treasuries fell after the figures, with the Standard & Poor’s 500 Index rising 0.8 percent to 1,336.62 at 10:34 a.m. in New York. The yield on the benchmark 10-year note rose to 3.49 percent from 3.47 percent late yesterday.

The median forecast of 79 economists surveyed by Bloomberg News was 61.1. Estimates ranged from 59 to 63.

A gauge of factories in the euro region dropped to 57.5 last month from February’s 59, London-based Markit Economics said. Manufacturing in China, India and Russia also expanded.

China Manufacturing

China’s manufacturing growth accelerated for the first time in four months with the index rising to 53.4 from 52.2, while India’s manufacturing grew for a 24th straight month and the index remained at 57.9. Russia’s factory output gauge increased to 55.6, the highest in almost five years, from 55.2.

Earlier, the Labor Department reported that the U.S. economy added 216,000 jobs in March, while the unemployment rate declined to 8.8 percent, signs the labor-market recovery is gathering speed.

The ISM’s production index increased to 69, the highest since January 2004, from 66.3. The new orders measure fell to 63.3 from 68, and the gauge of export orders decreased to 56 from 62.5.

The employment gauge slipped to 63 from 64.5 in the prior month.

Deliver Times

The index of prices paid jumped to 85, the highest since July 2008, from 82. A measure of supplier deliveries increased to a one-year high of 63.1 in March, indicating longer lead times.

“The delivery delays might have to do with anticipated or actual slowing from Japan” following the earthquake and tsumani, said Nigel Gault, chief U.S. economist at IHS Global Insight Inc. in Lexington, Massachusetts.

The measure of orders waiting to be filled fell to 52.5 from 59. The inventory index eased to 47.4 from 48.8, while a gauge of customer stockpiles was little changed at 39.5 from 40. A figure lower than 50 means manufacturers are reducing stockpiles.

Recent regional factory reports underscore the resilience of the manufacturing industry, which accounts for about 11 percent of the economy. The Federal Reserve Bank of Philadelphia’s index indicated factories expanded in March at the fastest pace since 1984, while the New York Fed’s measure rose to a nine-month high.

Export Growth

United Technologies, the maker of Pratt & Whitney jet- engines and Otis elevators, is among companies benefiting from growth in the so-called BRIC countries that include Brazil, Russia, India and China. The Hartford, Connecticut-based company in March boosted the low end of its 2011 earnings forecast amid improving markets across its divisions.

Peoria, Illinois-based Caterpillar, the world’s largest maker of construction equipment, is seeing a “slow, steady increase” in demand in North America, Chief Executive Officer Doug Oberhelman said at an industry conference on March 23. “Business is booming outside the U.S.,” Oberhelman said.

Auto dealers are also seeing improved demand. Car sales in February rose to a 13.38 million unit pace, the highest since the government’s cash-for-clunkers program in August 2009, according to industry data.

To contact the reporter on this story: Shobhana Chandra in Washington at schandra1@bloomberg.net

To contact the editor responsible for this story: Christopher Wellisz at cwellisz@bloomberg.net