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 November at 53.9. That is down from 54.6 in October and worse than economists expected. However, any reading above 50 signals overall activity expansion, and the latest figure is still one of the best prints of the past two years. Under the hood, production and new orders both increased at elevated rates last month, and employment expanded at the 2nd-best pace since 2015. Inflation pressures, though, continued to build in November, but surveyed manufacturers appeared to be able to offset the greater margin strain by passing on higher input prices to customers. In fact, output prices rose in November at the fastest pace in almost four years. However, Chris Williamson, Markit’s chief business economist, added that “in many cases the price hikes were linked to ongoing supply chain disruptions since the hurricanes, suggesting inflationary pressures should start to cool soon.” Similarly, the Institute for Supply Management's (ISM's) manufacturing index, also released this morning, ended November at 58.2. That is down from 58.7 in October and slightly worse than anticipated, although still one of the best readings of the current business cycle. Measures of new orders and production improved in November but employment declined. Comments from surveyed managers were generally positive last month.
Elsewhere, a report from the U.S. Census Bureau showed that construction spending in America grew at an adjusted annual rate of $1,241.5 billion in October (lagged release). That was an increase of 1.4 percent from September, the largest monthly gain since May, and significantly better than expected. Much of the headline strength was due to the public sector, which jumped by the most in three years. In fact, October’s gain helped lift the year-over-year pace of growth in the public sector to 1.8 percent, the first positive reading since November 2016. Private-sector construction spending also rose in October but the annual pace of growth remained well below the post-recession high. Looking ahead, a stronger rebound is possible in the public arena once Congress and the new administration are finally able to move forward with their plans for major infrastructure investment, and the private sector will benefit from taxation and regulatory reforms that encourage business investment.
Sources: Econoday, ZH, IHS Markit, ISM, U.S. DoC, FRBSLPost author: Charles Couch