U.S. manufacturing grew for the first time in 1-1/2 years in March as production rebounded sharply and new orders increased, but employment at factories remained subdued and prices for inputs pushed higher.

The Institute for Supply Management (ISM) said on Monday that its manufacturing PMI increased to 50.3 last month, the highest and first reading above 50 since September 2022, from 47.8 in February.

The rebound ended 16 straight months of contraction in manufacturing, which accounts for 10.4% of the economy. That was the longest such stretch since the period from August 2000 to January 2002.

A PMI reading above 50 indicates growth in the manufacturing sector. The ISM and other factory surveys had grossly overstated the weakness in manufacturing, which has been constrained by higher borrowing costs. Government data on Thursday showed manufacturing output rising at a 0.9% annualized rate in the fourth quarter. It grew 1.6% in 2023 compared to 0.8% in 2022.

Economists polled by Reuters had forecast the PMI rising to 48.5. Though consumer spending has shifted to services, demand for goods remains supported.

The ISM survey's forward-looking new orders sub-index increased to 51.4 last month from 49.2 in February.

Output at factories rebounded, with the production sub-index surging to 54.6 from 48.4 in the prior month.

There was no sign of supply chain constraints from attacks on international shipping in the Red Sea by Yemen's Houthi militants. The survey's measure of supplier deliveries slipped to 49.9 from 50.1 in the prior month, with a reading below 50 indicating faster deliveries.

Nonetheless, inflation at the factory gate picked up. The survey's measure of prices paid by manufacturers rose to 55.8 from 52.5 in February.

Factory employment continued to contract, though at a moderate pace. The survey's measure of manufacturing employment increased to 47.4 from 45.9 in February. This measure has, however, not been useful in predicting manufacturing payrolls in the government's closely watched employment report.