Manufacturing activity gathers steam in March, Philly Fed index shows

American manufacturing activity in the mid-Atlantic region cooled a tad in February, but continued to point to gathering momentum, according to the results of a very closely-watched survey.

The Federal Reserve bank of Philadelphia's gauge of factory activity fell back from a reading of 43.3 for February to 32.8 for March.

Economists had anticipated a reading of 28.0.

The key 'new orders' gauge, which helps to anticpate future activity, improved from 38.0 to 38.6 - its highest since December 1987.

A subindex tracking the pace of shipments also revealed an acceleration, rising from 28.6 to 32.9.

Price increases also quickened, with a subindex of prices paid by firms in the region rising from 29.9 to 40.7.

Hiring, despite being a lagging indicator, also picked up, with the subindex tracking that variable picking up from 11.1 to 17.5.

The length of the average workweek also rose, with the subindex for that improving from 13.6 to 18.5.

"The Philadelphia Fed manufacturing index (ISM adjusted) rose to 60.2 in August (previous: 55.6), a solid move up from last month’s reading," said Rob Martin at Barclays Research.

"However, the survey has increased substantially over the past three to four months without a comparable surge in activity. [...] We remain hopeful that the increase in the survey will translate into the production data."

Ian Shepherdson at Pantheon Macroeconomics was of a similar view, telling clients that: "the dip in the headline sentiment index is not reflected in the subindexes, all of which rose. New orders nudged up marginally, to 38.6, the highest since December 1987. The other subindexes are less spectacular, but overall their weighted sum is consistent with the national ISM manufacturing index rising to about 60, from 57.7. Other surveys aren't quite this strong, but the overall story here is that the industrial recovery continues to gather steam."