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 October at 53.4, a solid improvement from September’s 51.5 print and the best headline reading recorded in a year. Under the hood, production and new orders both expanded at a stronger pace, which put more pressure on capacity and resulted in a sharp increase in work backlogs. The latter helped total employment rise for the 40th month in a row, albeit at a slightly slower pace than in September. Chris Williamson, chief business economist at IHS Markit, stressed that “a widespread reticence to take on extra staff highlights lingering caution with respect to investing in capacity, at least until after the Presidential election.” Williamson added that “hiring is also being subdued partly by worries about escalating costs,” not surprising since average input costs have now increased for seven consecutive months, and surveyed managers reported the greatest rate of inflation in two years. Similarly, the Institute for Supply Management (ISM) manufacturing index, also released this morning, lifted to 51.9 in October, better than expected and the highest reading since July. Measures of new orders, backlogs, and customer inventories all deteriorated this month but production, foreign trade, and employment improved, with the latter climbing to the best level since June 2015. Comments from surveyed managers were generally positive.
Finally, data from the U.S. Census Bureau showed that construction spending in America grew at an adjusted annual rate of $1,150.0 billion in September (lagged release). That was a decline of 0.4 percent from August’s upward-revised print and significantly worse than the 0.6 percent gain economists had anticipated. This was also the first time since 2012 that construction spending has declined for two months in a row , and the first year-over-year decline since 2011. The weakness was broad in September, as both private and public construction growth continued to slow. The private sector has been especially weak recently, particularly in the residential and single-family arenas. Overall this was a disappointing report which could result in some downward revisions to third quarter U.S. gross domestic product (GDP) growth.
Sources: Econoday, Twitter, Bloomberg, ZH, IHS Markit, ISM, U.S. Census Bureau, FRBSLPost author: Charles Couch