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Economic Watch: New Manufacturing Orders Jump, Construction Leaps

November 2, 2015

By Evan Lockridge

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Economic activity in the nation’s manufacturing may finally be gaining some momentum after some declines, according to two new reports.

While the monthly survey of the nation’s supply executives by the Institute for Supply Management shows overall manufacturing activity fell for the fourth straight month in October, registering a 0.1 of percentage point drop from September, new orders rebounded sharply.

New orders increased 2.8 percentage points as eight of the 14 manufacturing industries reported new order levels that were higher than September. Also, the group’s measure of manufacturing production registered 1.1 percentage points above the September reading.

On the downside, manufacturing employment fell to its lowest level since April 2009.

A separate report from the financial information services provider Markit also highlighted a modest rebound in U.S. manufacturing performance, driven by faster rises in output, new orders and employment levels.

At 54.1, up from 53.1 in September, the final seasonally adjusted U.S. Manufacturing Purchasing Managers’ Index pointed to the sharpest improvement in overall business conditions since April, indicating a turnaround in growth momentum from the 22-month low recorded in August.

Manufacturing production increased at a robust and accelerated pace in October, with the rate of expansion the fastest for seven months. This reflected a reasonably strong upturn in new business volumes during the latest survey period, according to the survey.

According to RBC Economics, the weight of a strong U.S. currency, low energy prices and an uncertain external backdrop continue to restrain manufacturing output…although there was some evidence of activity picking up among the respondents’ comments (in the ISM report).

“These brighter prospects for the factory goods sector were apparent in the positive prints for new orders and production, with the spread between the two, an indicator of future activity, bouncing back to its highest level since July at 6.4 in the latest month,” said Laura Cooper, RBC economist.

“The presence of downside risks to the global economic backdrop and spillover to foreign demand will likely continue to temper the support to economic growth from net trade and keep manufacturing activity subdued," she continued. "However, ongoing strength in the domestic economy is expected to continue to mitigate weakness in externally exposed sectors of the US economy and tee up for real GDP growth to rebound to a 2.9% annualized pace in the fourth quarter of this year from a 1.5% rate in the third quarter of 2015.”

Meantime, another report showed construction spending in the U.S. continues going gangbusters, hitting its highest level in 7-and-a-half years, according to the Commerce Department.

Construction spending increased 0.6% in September following an unrevised 0.7% increase in August.

So far this year construction spending has increased every month and is up 14.1% in September compared to the same time a year earlier. It ws also 10.5% better in the first nine months of this year than it was during the same time frame in 2014.

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