Purchasing Managers Bring More Good News

In another sign that the U.S. economy is climbing off the mat, the Purchasing Managers' Index rose to its highest level since February 2000.

The Institute for Supple Management's gauge of manufacturing activity climbed to 55.6 in March from 54.7 in February, better than economists' expectations that it would remain unchanged. The gain in the index is yet another indication that the U.S.'s mild recession has drawn to a close. Any reading over 50 indicates growth in the manufacturing economy.

Particularly noteworthy within the guts of the report, manufacturers indicated that new orders, and order backlogs, were growing rapidly. Meanwhile inventories continue to contract, albeit at a slower pace. Together, the orders and inventory data suggest that companies will need to rebuild stock aggressively in the just-begun second quarter. The rapid growth the economy saw in the just-completed first quarter will likely spill over into the second.

"All the indications are that a weakened economy is improving rather quickly," says Salomon Smith Barney economist Stephen Wieting.

The good news on manufacturing further bolsters the case for the Federal Open Market Committee to raise rates when it next meets May 7 -- an idea that most economists continue to resist, but that the fixed-income market is laying heavy odds on. Notably, the prices-subindex showed manufacturers' cost for goods rose for the first time in over a year -- fodder for inflation hawks on the Fed who will be arguing for a quarter-point increase next month.

Treasuries, higher before the Purchasing Managers' Index release, slipped into negative territory. The benchmark 10-year was lately off 6/32 to 95 26/32, pushing the yield up to 5.43%.

Stocks fell further into the red, as worries about rising rates trumped indications of faster economic growth. The Dow Jones Industrial Average was lately off 118 points.

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