Manufacturing index rises more than expected

NEW YORK (CNNMoney.com) -- Manufacturing sector activity rose slightly in March, inching up for a third month, but the index reading still indicates an ongoing contraction, a purchasing managers' group said Monday.

The Tempe, Ariz.-based Institute for Supply Management's (ISM) manufacturing index rose to 36.3 in March, up from 35.8 the previous month.

The reading beat estimates from economists, who expected a slight increase to 36, according to a Briefing.com consensus survey.

After reports of declines in other surveys, "This is a pleasant surprise," Ian Shepherdson, chief U.S. economist at High Frequency Economics, wrote in a research note.

The slight month-to-month improvement indicates that the rate of contraction has slowed, but not reversed itself. Manufacturing is widely considered to be a key indicator in assessing the strength of the overall economy.

Index readings above 50 are considered to indicate growth, while levels below 50 signal contraction. Readings below 41 are associated with a recession in the broader economy.

The index hit a 28-year low of 32.9 in December, capping eleven straight months of decline.

The monthly report is a national survey of ISM members, who are purchasing managers in the manufacturing sector.

It tracks new orders, production, employment, supplier deliveries, inventories, customers' inventories, backlog of orders, prices, new export orders, imports and buying policy.

All 18 of the manufacturing industries - including categories such as chemical products, textile mills and apparel - reported continuing contraction in March, as they did the previous month.

But the key new orders index boosted the overall ISM reading. New orders are considered an indicator of manufacturing activity in the near future.

The new orders index jumped to 41.2 from 33.1, its highest level in seven months. The reading plunged in November after Lehman Brothers collapsed, Shepherdson noted.

"The [overall] index is still at recession levels, but if it's sustained, the rise in the orders index signals a slowing in the rate of decline," he wrote.

The March survey also included a special section asking respondents if they thought President Obama's economic stimulus package would provide relief. Five of the 18 manufacturing industries "expect to derive some benefit from the stimulus," ISM reported.

Other recent reports of data related to the sectors included in the ISM survey show a similar pattern: slight easing off lows, but still at recessionary levels.

A key index of consumer confidence rebounded slightly in March, but it held near historic lows. The Conference Board's index rose to 26 in March, the first increase since November, but following a record low 25.3 in February.

Employment reports released Wednesday were mixed. One showed the private sector lost more than 700,000 jobs in March, but another said the number of planned job cuts fell for the second straight month.

The global economic slowdown has limited consumers' purchasing power through rising unemployment, widespread pay cuts and tight credit, which has made it difficult to buy products such as cars and other big ticket items.