The numbers: American manufacturers grew faster in March as a key index hit a 38-year high, pointing to gathering momentum in the U.S. economy.
The Institute for Supply Management said its manufacturing index jumped to 64.7% from 60.8% in the prior month. Readings over 50% indicate growth, and anything over 55% is considered exceptional.
The increase surpassed Wall Street expectations. Economists surveyed by Dow Jones and The Wall Street Journal had forecast the ISM index to total 61.7%.
What happened: Seventeen of the 18 industries tracked by ISM expanded in March, with most reporting increases in production, new orders and employment
The production gauge moved up 4.9 points to 68.1% while the index for new orders rose 3.2 points to 68%.
The employment barometer rose for the fourth month in a row and climbed to a three-year high of 59.6%.
The U.S. likely added close to 700,000 new jobs or even more in March, economists estimate. The government will unveil the widely followed U.S. employment report on Friday morning, though markets are closed because of the Good Friday holiday.
The biggest problems manufacturers face right now are shortages of some key supplies that are hindering production and raising prices. Finding enough skilled workers, especially in a pandemic, has also been a chronic problem.
“Business conditions are positive for our industry and company. The constraints are mainly related to parts availability,” said a senior executive at a maker of transportation equipment. “Manpower is also a constraint. Hiring new members is a challenge.”
The ISM index is compiled from a poll of senior executives who are asked whether business is getting better or worse. The gauge tends to rise or fall in tandem with the health of the economy.
Big picture: Manufacturers have led the U.S. rebound and production has returned close to normal, but a full recovery won’t be possible until the global pandemic fades away.
Supply chains around the world have been disrupted and that’s making it harder for manufacturers to get the parts they need to meet rising demand for their goods. The recent episode of a large ship getting stuck in the Suez canal will only exacerbated the problem for a while.
What are they saying? “Growth will remain very strong over the next few months as consumers continue to spend their stimulus funds, people feel more comfortable going out, and businesses reopen,” said chief economist Gus Faucher of PNC Financial Services. “U.S. manufacturers will benefit from strong domestic and foreign economic growth.”