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U.S. manufacturing shrinks
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April 2, 2001: 12:50 p.m. ET
Manufacturing index up to 43.1, above forecasts, but still showing weakness
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NEW YORK (CNNfn) - U.S. manufacturing shrank for the eighth straight month in March, according to a report Monday that provided the first major reading on the economy's performance last month.
The National Association of Purchasing Management (NAPM) said its index of manufacturing rose to 43.1 from 41.9 in February. But that was still below 50, pointing to a shrinking manufacturing sector. Wall Street analysts had forecast a reading of 42.5. However, the number indicates the overall economy expanded slightly in March despite the drop in manufacturing, the group said in its report.
Manufacturing accounts for about a fifth of the overall economy.
 Separately, construction spending rose 0.6 percent in February to a seasonally adjusted annual rate of $834.2 billion, a record high, the Commerce Department said. Wall Street analysts had forecast a 0.4 percent increase.
The reports come after the Federal Reserve cut interest rates last month for the third time this year in a bid to keep the slowing U.S. economy from slipping into recession.
Wall Street yawned at the reports. The Dow Jones industrial average rose about 1 percent before heading lower in early afternoon trade, while the Nasdaq composite index was down more than 1 percent.
The reports also followed a report Friday showing a steep drop in Chicago-area manufacturing as companies scaled back production and inventory to keep pace with slackening consumer demand. Manufacturers have been cutting jobs by the thousands.
But while manufacturing has been extremely weak, some parts of the economy, including housing, have shown some strength, and consumer spending has not dropped as much as some analysts had forecast. Consumer spending fuels two-thirds of the nation's economy.
Analysts said the NAPM report makes it less likely that the Fed, the nation's central bank, would move to cut interest rates before its next regular meeting in May.
"I think what's clear is that while the manufacturing sector remains quite weak, downward momentum is probably subsiding," Merrill Lynch senior economist Stan Shipley told Reuters. "If you tie this together with the construction report, it basically says that on balance you're probably not in a recession."
Shipley said he still expects another half-point rate cut from the Fed in May, adding: "It would take a very weak employment report for an inter-meeting cut to take place." The government's March jobs report is due Friday.
In Monday's report, the NAPM said order backlogs fell for the 11th straight month, its employment index rose and its prices paid index fell, a sign that inflation is tame.
New orders for exports also grew in March while imports declined, the group said. It surveys executives at hundreds of big companies who buy everything from acid to computer chips to. 
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