Business conditions in the nation’s manufacturing sector turned around in May from the month before, while construction spending hit a six-year high. A weak spot? Consumer spending.

The Institute for Supply Management Purchasing Manager’s Index registered 52.8%, an increase of 1.3 percentage points over the April reading of 51.5%. The latest reading is the highest in three months and shows the manufacturing sector has expanded for 29 consecutive months.

A reading above 50 indicates that the sector is expanding, while below 50 means it's contracting.

The New Orders Index registered 55.8%, an increase of 2.3 percentage points from the reading of 53.5% in April. The Production Index registered 54.5%, 1.5 percentage points below the April reading of 56%.

“Comments from the panel carry a positive tone in terms of an improving economy, increasing demand, and improving flow of goods through the West Coast ports,” said Bradley J. Holcomb, chair of the ISM Manufacturing Business Survey Committee. “Also noted, however, are continuing concerns over the price of the U.S. dollar and challenges affecting markets related to oil and gas industries."

Of the 18 manufacturing industries, 14 reported growth in May and two reported no change. Two reported contraction: textile mills and computer/electronic products.

Personal Spending Stalls

Meantime, a separate report from the U.S. Commerce Department showed personal income increased 0.4% in April following a 0.1% increase the month before.

Personal spending was nearly unchanged after posting an upwardly revised 0.5% March increase. Personal savings as a percentage of disposable personal income increased to 5.6% in April, indicating households are more inclined to save their money rather than spend it.

On a three-month annualized basis, personal consumption is up 0.8%, a three-month high, thanks to the hefty rise at the end of first quarter.

The income and consumption reports help answer one of the market's key questions heading into the second quarter: Is the consumer back?

“In a word, no,” said Sterne Agee Chief Economist Lindsey Piegza. “After a short-lived rebound in March, consumers retreated once again to the sidelines in April after three consecutive months of negative retail spending beginning back in December of last year. Clearly the warm Spring weather and a resolution to the West Coast port disruptions were not enough to spark life into consumer spending."

She said with job growth moderating and income growth still lackluster, as well as a weaker-than-expected gross domestic product performance in the first quarter, confidence in the storyline that growth will be stellar for the remaining nine months of the year is dwindling. 



“Consumers are still spending, but with rising costs elsewhere, particularly healthcare, Americans have to strategically redirect funds from discretionary spending to essential purchases, while still leaving some monies left over to allocate to savings,” Piegza said. “What appears to be a sound long-term plan, in the short-run, if the consumer remains restrained, there is little hope for a 2014-style rebound in the works. With an expectation for the second quarter [GDP] to fall short of 2%, the U.S. economy is poised for the worst first-half performance since the Great Recession.

Construction Spending Highest in More Than Six Years

However, a second Commerce Department report showed U.S. construction spending in April hit a nearly six-and-a-half year high.

The 2.2% increase from the month before took it to an annual rate of $1 trillion, the highest level since November 2008 and the biggest monthly increase since May 2012.

The department also revised March’s level from a previously reported 0.6% drop to a 0.5% increase.

April saw a 1.8% increase in private construction, its highest level since October 2008, while private resident construction posted a 0.6% improvement and spending on non-residential private projects increased 3.1% and hit a six-year high.

Public construction was mixed with state and local projects increasing 3.3% while federal ones fell 3.6%.

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Evan Lockridge

Evan Lockridge

Former Business Contributing Editor

Trucking journalist since 1990, in the news business since early ‘80s.

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