April 3, 2006 – The ISM diffusion index of U.S. manufacturing activity fell by 1.5 index points to 55.2 in March, but continued to signal strong manufacturing growth (Chart 1). This index has fluctuated in a relatively narrow range of about 3 index points for the last seven months.
The input price index rose by 4 index points to 66.5 in March – still signaling unusually strong growth in manufacturers’ input costs (Chart 2). According to the ISM press release, “Prices are still a major concern, particularly in the energy and metals markets.”
The employment index fell by 2.5 index points to 52.5 in March (Chart 3), but continued to signal a positive trend in the manufacturing payroll job count (coming Friday).
The FOMC has been worrying about the inflation risks posed by the combination of strong real economic growth and high/rising input costs. According to the ISM manufacturing survey, both of these conditions persisted in March.