(April 1): US factory activity unexpectedly expanded in March for the first time since September 2022 on a sharp rebound in production and stronger demand, while input costs climbed.

The Institute for Supply Management’s manufacturing gauge rose 2.5 points to 50.3 last month, according to data released Monday. While barely above the level of 50 that separates expansion and contraction, it halted 16 straight months of shrinking activity.

The March index exceeded all estimates in a Bloomberg survey of economists.

Production snapped back sharply from a month earlier with a gain of 6.2 points that was the largest since mid-2020. At 54.6, output growth was the strongest since June 2022.

The group’s measure of new orders also returned to expansion territory after contracting in February. The factory employment gauge shrank less in March than a month earlier.

“Demand remains at the early stages of recovery, with clear signs of improving conditions. Production execution surged compared to January and February, as panelists’ companies reenter expansion,” Timothy Fiore, chair of the ISM Manufacturing Business Survey Committee, said in a statement.

Nine industries reported growth in March, led by textile mills, nonmetallic minerals, paper products and petroleum. Six contracted, including furniture, plastics and rubber products, and electrical equipment.

More optimism

The nation’s purchasing and supply management executives have recently expressed optimism about the outlook for manufacturing. Firmer orders growth illustrates resilient consumer demand and business investment, and suggests companies have made strides getting inventory levels in line with sales.

The ISM data showed factory stockpiles contracted at a slower rate last month than in February, while a measure of customer inventories shrank at a faster pace.

At the same time, the cost of materials and other inputs is rising, suggesting stubborn inflationary pressures. The group’s gauge of prices paid rose by 3.3 points to 55.8, the highest since July 2022.

Meanwhile, orders from overseas customers, backlogs and imports were all unchanged in March.