TopNews

Economic Watch: Manufacturing Remains Soft; Homes, LEI Slip

September 23, 2016

By Evan Lockridge

SHARING TOOLS        | Print Subscribe

A preliminary report released Friday shows growth in the nation’s manufacturing sector is easing this month amid the slowest expansion of new orders so far this year, according the financial information services provider IHS Markit.

The seasonally adjusted Markit Flash U.S. Manufacturing Purchasing Managers’ Index for September is registering 51.4, down from 52 in August, pointing to the weakest improvement in overall business conditions since June. A reading above 50 indicates expansion while one below 50 signals contraction.

The full report, along with a similar and more closely watched one from the Institute of Supply Management, are both due out on Oct. 3.

Despite the September showing, the latest PMI reading marked seven years of continuous growth across the manufacturing sector. However, the headline index was below the average of 54 seen over this period and remains close to the post-Great Recession crisis low of 50.7 recorded in May.

Softer rates of output and new business growth were the main factors weighing on the headline PMI during September, according to the report. Also, the latest expansion of manufacturing production was the weakest for three months.

Survey respondents suggested that relatively subdued economic conditions had acted as a brake on new order volumes, while there were also reports that the strong dollar had dampened export sales. Reflecting this, latest data signaled that new work rose at the slowest pace since December 2015, while export orders dropped for the first time in four months.

“Softer new order gains are the main concern in the latest PMI survey, and this could act as a drag on production growth into the final quarter. Alongside reports of subdued domestic demand, a renewed dip in export sales also held back growth momentum in September,” says IHS Senior Economist Tim Moore.

He says despite the growth setback in September, manufacturers appear reasonably upbeat about their longer-term prospects.

“Job creation rebounded since August and input buying continued to expand at a notably faster pace than seen during the first half of the year,” Moore says. “At the same time, overall cost inflation remained marginal and this provided some headroom to stimulate client spending through price discounting.”

Leading Indictors Fall in August, Up Nearly 2% Over Past Year

This follows a report on Thursday by the private research group The Conference Board saying its Leading Economic Index for the U.S. declined 0.2% in August to 124.1 following a 0.5% increase in July, and a 0.2% increase in June. The index is used to forecast where the economy is headed in the next three to six months.

“While the U.S. LEI declined in August, its trend still points to moderate economic growth in the months ahead,” said Ataman Ozyildirim, director of business cycles and growth research at The Conference Board. “Although strengths and weaknesses among the leading indicators are roughly balanced, positive contributions from the financial indicators were more than offset by weakening of nonfinancial indicators, such as leading indicators of labor markets, suggesting some risks to growth persist.”

Over the past six months the LEI has increased at an equivalent to an annual rate of 1.8%, which is about the same yearly pace of expansion in the nation’s gross domestic product.

The Conference Board Coincident Economic Index for the U.S., which measures current economic activity, increased 0.1% in August to 114.1 following a 0.3% increase in July and a 0.3% increase in June. The Lagging Economic Index for the U.S., a gauge of economic activity of previous months, increased 0.2% in August to 122.1 following a 0.2% increase in July and a 0.2% decline in June.

Existing Home Sales Fall For Second Straight Month, Overall Construction Jumps

Also on Thursday a report showed existing-home sales eased up in August for the second consecutive month despite mortgage rates near record lows as higher home prices and not enough inventory for sale kept some would-be buyers at bay, according to the National Association of Realtors.

Total existing-home sales, which are completed transactions that include single-family homes, townhomes, condominiums and co-ops, declined 0.9% to a seasonally adjusted annual rate of 5.33 million in August from a downwardly revised 5.38 million in July.

After last month's decline, sales are at their second-lowest pace of 2016, but are 0.8% than a year ago.

According to Lawrence Yun, NAR chief economist, recent job growth is not yielding higher home sales.

"Healthy labor markets in most the country should be creating a sustained demand for home purchases," he said. "However, there's no question that after peaking in June, sales in a majority of the country have inched backwards because inventory isn't picking up to tame price growth and replace what's being quickly sold."

Single-family home sales, the biggest share of existing home sales by far, declined 2.3% to a seasonally adjusted annual rate of 4.70 million in August from 4.81 million in July, but are still 0.6% above the pace a year ago.

Meantime, a separate report on total U.S. construction activity for August shows a dramatic improvement from the month before with new construction starts soaring 21% to a seasonally adjusted annual rate of $711.2 billion, according to construction industry data provider Dodge Data & Analytics, following lackluster activity in July.

The August rise for total construction starts featured an especially elevated amount for nonresidential building while the non-building construction sector also experienced strong growth, including public works projects.

Through the first eight months of 2016, total construction starts on an unadjusted basis totals $439.3 billion, down 7% from a year ago. As 2016 is proceeding, the year-to-date decline for total construction is becoming smaller, affected to a lesser extent by the comparison to the massive projects reported during the first half of 2015 and now benefitting from the start of several massive projects in this year’s second half, according to the report.

“The sharp rise in August makes it likely when September data becomes available that construction starts for the third quarter will be able to register moderate growth, supporting the belief that the construction industry still has room for further expansion despite some recent deceleration” says Robert A. Murray, chief economist for Dodge Data & Analytics.

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