Fleet Management

Economic Watch: Manufacturing Firms, Construction Down as Personal Spending Jumps

June 01, 2017

By Evan Lockridge

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Results from two surveys of the nation’s purchasing executives indicate manufacturing activity in the U.S. during May was nearly unchanged from the month before. Meanwhile, separate reports show construction spending eased, but consumer spending increased, resulting in hopes that the current quarter will be stronger for the overall economy than the previous one.

The Institute for Supply Management’s Purchasing Managers Index (PMI) registered 54.9%, up 0.1 of a percentage point from the month before, but slightly less than a consensus estimate from analysts of 55%.

This marked the 9th straight month of growth and the 96th consecutive month the manufacturing economy has expanded with a reading above 50%, according to the supply management organization.

The New Orders Index registered 59.5%, an increase of 2 percentage points from the  April reading while the Production Index registered 57.1%, a decline of 1.5 percentage points from April. Of the 18 manufacturing industries, 15 reported growth in May.

While the overall May reading doesn’t look that strong “the details are very healthy,” said analysts at Econoday, with new orders coming in at a very strong rate while production was also strong with gains in import orders and employment, all indicating a “steady and impressive” report.

A similar survey from financial information services provider IHS Markit shows manufacturing activity in May fell slightly to an eight-month low.

Its final May U.S. Manufacturing Purchasing Manager’s Index fell to 52.7, the weakest reading since September, but above the 50 no-change value. A preliminary reading for May, released just over a week ago, had the index slightly lower at 52.5.

This latest reading pointed to a further growth slowdown from the 22-month high recorded in January of 55. Weaker new business growth and softer job creation helped to offset a marginally stronger upturn in production volumes, according to the report.

May data indicated that manufacturing output increased over the past 12 months. The rate of expansion picked up slightly from April’s seven-month low, but remained relatively modest overall.

“Exports sales remained especially lackluster, hampered in part by the relatively strong dollar,” said Chris Williamson, chief business economist at IHS Markit. “The survey also brought signs of companies becoming more cautious about holding inventory.”

Some analysts have claimed this latter report has consistently been the most negative of all manufacturing reports since the first of the year and has failed to deliver on indications of increased manufacturing strength.

Construction Spending Falls from Prior Month, Up from Year Earlier

Both reports were released as a separate one from the Commerce Department showed construction spending in the U.S. in April fell 1.4% from the revised March level, well short of Wall Street expecations of a 0.5% increase. March’s performance was revised to a 1.1% gain from February, compared to an originally reported 0.2% decline.

Despite the decline, April activity was still 6.7% better than the same time a year ago and is 5.8% better through the first five months of the year than during the same time in 2016.

Declines in both private and public construction pulled the April headline figure lower when compared to March, but are up by 15.6% and 10.4%, respectively, when compared to April 2016.

Wells Fargo Securities downplayed the April from March decline. It said the “dip was tempered by the upward revisions to the previous month that revealed outlays were running at a record high in March.”

Also, mild winter weather earlier this year made for a busy spring construction season. Spending in the first four months of 2017 was up 5.8%  from the previous year.

Consumer Spending Best since December

These reports follow one from Wednesday that showed consumer spending in the U.S. climbed 0.4% in Apri, matching analysts’ expectations and marking the biggest gain since December.

The hike in consumer spending, which drives a majority of all economic activity, may help ease concerns about the condition of the overall economy, which grew at an annual rate of just 1.2% in the first quarter of the year.

“After slowing in January and February, consumers appear to be picking up at least a modest amount of steam at the start of the second quarter, said Lindsey Piegza, chief economist at Stifel Financial. “Enough to support overly optimistic expectations of resurgence in growth to 3-4%? Most likely not. Still, an improvement from an extremely tepid level early on in the year is a welcome step in the right direction.”

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