There were a few important reports on the U.S. economy released this morning. First, the manufacturing purchasing managers' index (PMI) from IHS Markit ended July at 52.9, the highest reading in nine months and another solid increase following the nearly 7-year low hit in May. Under the hood, growth accelerated last month for output, new orders, and employment, with the latter expanding at the fastest pace in a year. Purchasing activity also increased in July due to higher levels of incoming new work, and surveyed managers cited only subdued rates of input cost inflation. Somewhat less encouraging was the Institute for Supply Management (ISM) manufacturing index, which slid to 52.6 in July. That was worse than expected but still the 5th month in a row of overall activity expansion (>50). Measures of production and inventories improved last month, while new orders, employment, and foreign trade deteriorated. Comments from surveyed managers were generally positive. Both of these reports, along with July’s data on regional activity, suggest that it was a mixed start to the third quarter of 2016 for the U.S. manufacturing sector. Markit’s chief economist Chris Williamson, though, remains optimistic that "the sector will act as less of drag on the economy in the third quarter after a disappointing first half of the year.”
Elsewhere, data from the U.S. Census Bureau showed that construction spending in America grew at an adjusted annual rate of $1,133.5 billion in June (lagged). This was a decline of 0.6 percent from May, the third month-over-month decrease in a row, and significantly worse than the 0.6 percent gain that was expected. The weak headline reading on construction spending also does not bode well for economists hoping to see an upward revision later this month to last week’s disappointing report on second quarter U.S. gross domestic product (GDP) growth. On a year-over-year basis, construction spending expanded by just 0.3 percent in June, the slowest pace of annual growth since 2011. The slowdown can be seen in both public and private construction spending, and the former actually turned negative in April. 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.
Sources: Econoday, Twitter, Bloomberg, ZH, IHS Markit, ISM, U.S. Census Bureau, FRBSLPost author: Charles Couch