Fleet Management

Economic Watch: Manufacturing Keeps Expanding but Construction Uneven

November 01, 2017

By Evan Lockridge

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The nation’s manufacturing sector continued growing over an array of industries last month, though there is a bit of disagreement as to how fast it is expanding, following the release of two reports.

The closely watched Purchasing Managers Index from the Institute for Supply Management showed on Wednesday that the October reading was 58.7%, a decrease of 2.1 percentage points from the September reading of 60.8%.

A reading over 50% indicates manufacturing is expanding while below 50% signals contraction.

This latest headline reading indicates growth in manufacturing for the 14th consecutive month and continued expansion consistent with pre-hurricane levels, according to the report.

Also, the New Orders Index registered 63.4%, a decrease of 1.2 percentage points from September while the Production Index registered 61%, a 1.2 percentage point decrease from the month before.

Of the 18 manufacturing industries surveyed, 16 reported growth in October.

Meantime, a similar gauge from financial information services provider IHS Markit showed the manufacturing sector during October operated at its best level in nine months.

Its U.S. Manufacturing Purchasing Managers’ Index (PMI) registered 54.6 in October, up from 53.1 in September. The latest index figure indicated a solid improvement in manufacturing operating conditions. That was the fastest seen since the start of the year, according to the group.

Like the ISM measure, a reading above 50 for the PMI gauge indicates manufacturing is expanding.

The report noted that production grew at an accelerated rate in October, with the pace of expansion reaching an eight-month high. Anecdotal evidence suggested the rise was due to a strong demand environment and larger new order volumes. Similarly, new business received by manufacturers increased solidly and at the fastest pace since March. Panelists generally attributed the upturn to larger client bases.

“U.S. manufacturing stepped up a gear at the start of the fourth quarter, boding well for higher factory production to support robust economic growth in the closing months of 2017,” said Chris Williamson, chief business economist at IHS Markit. “Production volumes jumped higher on the back of a substantial improvement in order book inflows, in part due to supply chains returning to normal after the hurricanes but also reflecting a combination of strong underlying demand.”

He also noted that factory jobs growth has also picked up to one of the strongest levels since the global financial crisis, underscoring the improvement in optimism about future trading among manufacturers.

“An important change in October was the broadening out of the expansion to smaller firms, which have lagged behind the strong growth reported by larger rivals throughout much of the year to date but under-performed to a lesser extent in October,” Williamson said.

Construction Spending Edges Higher but Has Less Steam

In the construction sector, a Commerce Department report, also released Wednesday, showed total construction spending in the U.S. during September moved higher by 0.3% as a surge in public projects offset a drop in private ones. Overall, the report was seen as better than analysts’ expectations.

Total construction spending in September was estimated at $1.22 trillion, as the department downwardly revised the August performance to a 0.1% increase that was first reported as a 0.5% rise.

During the first nine months of 2017, construction spending improved 4.3% compared to the same time in 2016 while the September performance was 2% higher than it was a year earlier.

Private construction saw the level of residential building nearly unchanged in September from August while nonresidential building moved 0.8% lower. Public construction saw a 5.2% jump in educational building as highway construction increased 1.1%.

With the ups and down in this report, Econoday described it as a “mixed report for what has proven to be an uneven year for the construction and housing sectors.” Analysts there pointed out that over the last year, a decline in residential outlays has pulled down year-over-year growth for overall construction outlays.

These reports following positive ones from last week showing the nation’s gross domestic product increased at an annual rate of 3% in the third quarter of the year, following a 3.1% rate in the second quarter of the year, its best back-to-back gains since 2014.

Also, consumer confidence during October hit its highest level since early 2004, while consumer spending in September jumped 1%, its biggest monthly gain in eight years.

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