A survey shows U.S. manufacturing activity expanded more slowly in March than February, held back by weaker growth in production and new orders.
But factories hired at the fastest pace in nine months, an encouraging sign before Friday's report on March employment.
The Institute for Supply Management said Monday that its index of factory activity slipped to 51.3 percent. The index fell from 54.2 percent in February, which was the fastest growth since June 2011.
A reading above 50 indicates expansion. The index has signaled growth for four straight months. But the drop in March growth was bigger than economists expected.
Jennifer Lee, senior economist at BMO Capital Markets, said in a note to clients that the March decline might be the first sign that companies are worried about federal spending cuts that took effect on March 1.
But Joshua Shapiro, chief U.S. economist at MFR Inc., cautioned that the index's drop last month might just be a one-month blip. Combined, the ISM reports for the first three months of 2013 "suggest that the manufacturing sector is now making moderate headway." In addition to faster hiring, new export orders grew faster in March than February.
The ISM said the index was consistent with an annual rate of economic growth of 3.3 percent from January through March, up from a tepid 0.4 percent growth rate in the last three months of 2012.
The U.S. economy has proved surprisingly resilient in the face of tax increases that took effect in January and the budget cuts that began to kick in March 1.
The government reported Friday that U.S. consumers increased spending in February as their incomes jumped.
Underlying the improvement is a strengthening job market. Employers have been adding 200,000 jobs a month since November, twice the pace of last spring. Unemployment fell in February to 7.7 percent, the lowest since December 2008.