TopNews

Economic Watch: Manufacturing Activity Contracts, Construction Booms

December 1, 2015

By Evan Lockridge

SHARING TOOLS        | Print Subscribe

A closely watched gauge of activity within the nation’s manufacturing sector shows it not only declined for the fifth straight month, but also that activity contracted during November for the first time in three years, according to the nation’s supply executives.

The Institute for Supply Management’s report shows its index of manufacturing activity fell below the 50% neutral threshold for the first time since November 2012, registering 48.6% following an October reading of 50.1%.

The New Orders Index registered 48.9%, a decrease of 4 percentage points from the reading of 52.9% in October, while the Production Index registered 49.2%, compared to the October reading of 52.9%.

On a more positive note, the Employment Index was 51.3%, 3.7 percentage points above the October reading of 47.6%, but the New Export Orders Index was unchanged from the month before.

In contrast to the recent downtrend in the ISM manufacturing index, hard data to date shows the sector has continued to grow moderately. The manufacturing component of industrial production was up up 1.9% year-over-year in October, according to Josh Nye, economist at RBC Economics.

“While that is down from rates above 3% around the turn of the year, it is certainly not as weak as recent near- and sub-50 readings from the ISM survey would indicate,” he said. “Nonetheless, headwinds such as a strong U.S. dollar and a slowdown in the energy sector highlighted by ISM respondents will likely continue to weigh on manufacturing, preventing any significant acceleration in growth.”

Ten out of 18 manufacturing industries reported contraction in November while just five reported growth.

A separate report on manufacturing activity released by the financial information services provider Markit showed the lowest reading in 25 months, but indicated the sector was still expanding, albeit at a slower rate in November than October.

Softer new business growth was the main factor weighing on its Purchasing Managers Index. Volumes of new work rose at the weakest pace for just over two years, which survey respondents attributed to reduced client confidence and weak export demand.

“The PMI results are indicative of the manufacturing sector growing at an annualized rate of around 2% in the fourth quarter so far,” said Chris Williamson, chief economist at Markit.

These reports follow a preliminary one from last month showing new orders of durable goods in October, a subset of manufacturing, increased 3% following two monthly declines, according to the Commerce Department. October manufacturing measured by the Federal Reserve showed a 0.4% increase. A full report on October durables is due out Thursday while the Fed's November report on manufacturing and the rest of industrial production isn’t due out for about two more weeks.

Construction Keeps Jumping

New U.S. Commerce Department figures show total construction spending increased in October by an upwardly revised 1% amount from the month before.

The most recent level of more than a seasonally adjusted annual rate of $1.1 trillion is 13% higher than the amount from October 2014 and the highest since December 2007, while the year-to-date level has improved 10.7% above the same time last year.

October’s increase reflected a 0.8% increase in private spending due to gains in both residential and nonresidential spending while there was a 1.4% gain in nonresidential public spending.

Construction spending has increased every month this year and is expected to continue this trend through 2015, according to many economists. With manufacturing easing and consumers spending barely increasing in October from the month before, building is likely to be one of the brightest, if not the brightest spot, in the U.S. economy once the book is closed on 2015.

Canada Shows New Signs of Life

Meantime, to the north, there is better news when it comes to the United States’ largest trading partner.

Canada’s third quarter annualized gross domestic product growth rate returned to positive territory rising 2.3% following a 0.3% decline in the second quarter, according to figures released by the country’s government, marking the best pace in a year.

Earlier weakness largely reflected the impact of weakening oil prices and the sharp reduction in energy investment.

Slightly tempering the news was a separate report showing September Canadian GDP sank 0.5% in the month following three straight months of increases. However, almost all of the monthly decline could be attributed to a 5.1% drop in the mining component, with the overall decline expected to see a reversal when October numbers are issued.

Comment On This Story

Name:  
Email:  
Comment: (Maximum 2000 characters)  
Leave this field empty:
* Please note that every comment is moderated.

Newsletter

We offer e-newsletters that deliver targeted news and information for the entire fleet industry.

GotQuestions?
sponsored by
sponsor logo

ELDs and Telematics

Scott Sutarik from Geotab will answer your questions and challenges

View All
GotQuestions?

Sleeper Cab Power

Steve Carlson from Xantrex will answer your questions and challenges

View All