There were a few important reports on the U.S. economy released this morning. First, the purchasing managers' manufacturing index (PMI) from Markit Economics ended May at 50.7, up from the mid-month (flash) reading but still slightly below April’s print. Moreover, the final May reading is now the weakest end-of-month manufacturing performance recorded by Markit since September 2009, and many surveyed managers blamed the slowdown on subdued client demand and heightened economic uncertainty. Under the hood, production volumes contracted for the first time in more than six years, likely exacerbated by continued inventory reduction. Slightly more positive was the Institute for Supply Management (ISM) manufacturing index, also released this morning, which ended May at 51.3, a better rebound than expected and the third month-over-month increase in a row. However, measures of new orders and production deteriorated last month and input cost inflation rose to the highest level since 2011. Chris Williamson, the chief economist at Markit, added that “For those looking for a rebound in the economy after the lackluster start to the year, the deteriorating trend in manufacturing is not going to provide any comfort.”
Elsewhere, a report from the U.S. Census Bureau showed that construction spending in America grew at an adjusted annual rate of $1,133.9 billion in April (lagged), a decline of 1.8 percent from the prior month and much worse than the +0.6 percent gain economists had expected. This was the largest monthly drop since 2011 and much of the weakness was due to slowdowns in construction spending in the commercial, residential, healthcare, education, communications, and highway arenas. Over the past twelve months, total construction spending in America expanded by 4.5 percent, down considerably from the March reading of 8.0 percent, but the private sector encouragingly remains the main driver of growth.
Sources: Econoday, Twitter, Bloomberg, ZH, Markit Economics, ISM, U.S. Department of Commerce, FRBSLPost author: Charles Couch