There were a few important reports on the U.S. economy released this morning. First, the purchasing managers' manufacturing index (PMI) from Markit Economics fell to 50.8 in April, below expectations and the worst headline reading since September 2009. Under the hood, production volumes and total employment both rose modestly last month, and new business expanded at the slowest pace so far in 2016. Backlogs of work declined for the third straight month in April, signaling a lack of pressure on operating capacity in the manufacturing sector, and the 7-month downtrend in input costs finally ended (inflation). This disappointing report generally agrees with the mixed data on regional manufacturing activity released for the month of April and Chris Williamson, the chief economist at Markit, added that “Rather than reviving after a disappointingly weak first quarter, the data flow therefore appears to be worsening in the second quarter, raising question marks over whether GDP growth will improve on the near-stalling seen in the first three months of the year.” The Institute for Supply Management (ISM) manufacturing index, also released this morning, ended April at 50.8, down from the March reading and worse than forecast. Measures of new orders, production, inventories, and backlogs all declined last month but employment and foreign trade firmed. One surveyed manager optimistically said that “Sales are firming at the reduced levels we’ve seen this year. We think we have hit a bottom.”
Elsewhere, a report from the U.S. Census Bureau showed that construction spending in America grew at an adjusted annual rate of $1,137.5 billion in March (lagged), a 0.3 percent decline compared to the prior month and worse than economists had expected. However, the February loss of -0.5 percent was revised much higher to a gain of +1.0 percent, leaving construction spending up a healthy 8.0 percent on a year-over-year basis. Most of the weakness in March was due to state and local governments while private residential construction spending continued along at a solid pace. Public construction outlays did manage to rise in March for highways/streets investments, an infrastructure component that has surged by nearly 19 percent over the past twelve months.
Sources: Econoday, Twitter, DShort, Bloomberg, ZH, Markit Economics, ISM, U.S. Department of Commerce, FRBSLPost author: Charles Couch