The nation’s manufacturing sector registered further growth in April, though at a slightly slower pace than the month before, while the increase in prices for raw materials also moderated.
Yet the figures Monday from the National Association of Purchasing Management–along with a separate government report of a surprising rise in construction spending in March–paint a picture of such a strong economy that Federal Reserve policymakers may feel compelled to raise interest rates aggressively when they meet later this month, economists said.
Several analysts predicted that the Fed could increase short-term rates one-half percentage point at the meeting May 16. All five of the previous rate increases since June have been a quarter point.
The purchasing managers’ group said its manufacturing index, based on a national survey of executives who buy raw materials for industries, registered 54.9 percent in April, weaker than the 55.8 percent reported for March and the lowest since a 54.4 percent reading last August.
Any reading above 50 indicates growth, and the purchasing managers’ index has been above that level for 15 consecutive months.
Norbert J. Ore, who oversees the purchasing managers’ survey, said “the overall picture is one of continuing growth in manufacturing.” But he noted that the “trend for the last six months indicates deceleration in the rate of growth.”
The price index remained high at 76 percent in April but was down from the 79.8 percent spike the month before, which was a five-year high.
Ore said that “the recent decline in energy prices has not found its way through the manufacturing sector this month” and added: “This should give hope to further declines in the prices index in the near term.”
The Commerce Department reported Monday that construction spending rose a surprisingly strong 1.4 percent in March, to a seasonally adjusted annual rate of $765.2 billion. It was the third straight increase, fed largely by spending on big government projects, the department said. Analysts had forecast that construction spending would be unchanged or decline.
The persistent strength in manufacturing and construction–along with recent reports showing rises in consumer prices and workers’ salaries–were cited by several economists as evidence that the Fed may decide to be more aggressive in its efforts to cool the economy.
Tim O’Neill, chief economist for the Bank of Montreal and Harris Bank in Chicago, said it was “a better-than-even bet” that the Fed would raise rates a half point later this month. “You have an economy with a dramatic amount of momentum in it,” O’Neill said. “The Fed has to put on the brakes.”
