There are a few reports on the U.S. economy worth mentioning today. First, the manufacturing purchasing managers' index (PMI) from Markit Economics ended June at 51.3, the highest reading in three months and a welcome rebound from the nearly 7-year low hit in May. Under the hood, production volumes (helped by an uptick in export orders) and total employment both improved last month, and new business expanded at the fastest pace since March. However, Q2 was still the worst quarter for goods producers in six years, according to Markit data, and several surveyed managers reported that “heightened economic uncertainty and delayed decision making ahead of the presidential election had acted as a brake on client demand.” More encouraging was the Institute for Supply Management (ISM) manufacturing index, which jumped to 53.2 in June. That was significantly better than expected, the 4th month in a row of activity expansion (>50), and the highest reading since February of last year. Measures of new orders, production, foreign trade, inventories, and employment all rose last month, and comments from surveyed managers were generally positive. Markit’s chief economist Chris Williamson, though, stressed that “Producers are struggling in the face of the strong dollar, the energy sector decline and presidential election jitters. With companies craving certainty, heightened tensions between the UK and the European Union are likely to unsettle the global business environment further in coming months, and therefore risk dampening growth in the US and export markets. The data flow in the next two months will therefore be critical to policymakers in gauging the appropriate outlook for interest rates.”
Elsewhere, a report from the U.S. Census Bureau showed that construction spending in America grew at an adjusted annual rate of $1,143.3 billion in May (lagged), a decline of 0.8 percent from the prior month and much worse than the +0.6 percent gain economists had expected. Moreover, total construction spending in America over the past two months has contracted by the most since 2011, and annual growth has plunged to just 2.80 percent. The slowdown can be seen in both public and private construction spending, and the former actually turned negative on a year-over-year basis in May. Uncertainty about the U.S. economy and the upcoming election could be partially to blame for the recent weakness but some areas of construction spending remain quite strong. For example, single-family residential construction is 6.3 percent higher than it was a year ago, and multi-family construction has surged by 23.9 percent over the past twelve months thanks to strong rental demand.
Sources: Econoday, Bloomberg, Twitter, ZH, U.S. Census Bureau, Markit Economics, ISM, FRBSLPost author: Charles Couch