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Economic Watch: Manufacturing, Construction at Highest Level in Years

September 2, 2014

By Evan Lockridge

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Photo: Evan Lockridge
Photo: Evan Lockridge

U.S. economic activity in the manufacturing sector expanded in August for the 15th consecutive month, hitting its highest level since March 2011, according to the nation's supply executives.

The Purchasing Managers Index, released Tuesday by the Institute of Supply Management, registered 59%, an increase of 1.9 percentage points from July’s reading of 57.1%.

A reading above 50% indicates manufacturing growth, while one below 50% shows contraction.

The New Orders Index registered 66.7%, an increase of 3.3 percentage points from the 63% reading in July, indicating growth in new orders for the 15th consecutive month. The Production Index registered 64.5%, 3.3 percentage points above the July reading of 61.2%. The Employment Index indicated growth for the 14th consecutive month, registering 58.1%, a slight decrease of 0.1 percentage point below the July reading.

“The August PMI is led by the highest recorded New Orders Index since April 2004, when it registered 67.1,” said Bradley J. Holcomb, chair of the Institute for Supply Management Manufacturing Business Survey Committee. “At the same time, comments from the panel reflect a positive outlook mixed with caution over global geopolitical unrest."

Of the 18 manufacturing industries, 17 are reporting growth in August.

"Gains in new orders suggest that at least modest growth in manufacturing is likely to continue for the next month or two, a welcomed support for the third quarter gross domestic product,” said Lindsey Piegza, chief economist at the investment firm Sterne Agee. “Of course as American factories appear to be ramping up production with further reports showing gains in inventories and lingering stockpiles of goods, consumer spending continues to show signs of weakness as minimal income growth restrains overall consumption.”

She warned this clear disconnect will need to be rectified sooner rather than later with either a reduction in goods production or a ramp up in consumer spending.

A separate report, also released Tuesday, show total U.S. construction spending in July increased 1.8% from June’s level, according to the U.S. Commerce Department, its biggest gain since May 2012 and its highest level since December 2008.

The July level is also 8.2% higher than from the same time in 2013, while the pace of construction spending in the first seven months of the year is running 7.9% higher than during the same period last year.

Spending on private construction increased 1.4% in July from June while residential construction gained 0.7% and nonresidential building added 2.1%.

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