There are conflicting reports on activity in the nation’s manufacturing sector. One report says it moved into high gear in June, hitting a near three-year high, while a separate one indicated conditions were the weakest since last September.

The Purchasing Managers’ Index from the Institute for Supply Management moved up 2.9 percentage points last month to 57.8%, its highest level since August 2014, and better than analysts’ expectations. This also marked the 10th consecutive month it has been above 50%, which indicates expanding manufacturing activity.

The New Orders Index registered 63.5%, an increase of 4 percentage points from the May reading, while the Production Index registered 62.4%, a 5.3 percentage point increase compared to the May level.

Of the 18 manufacturing industries surveyed by the Institute for Supply Management for the index, 15 reported growth in June.

However, the report stands in sharp contrast to a similar one from IHS Markit, which showed manufacturing growth weakened in June.

The IHS Markit Purchasing Managers’ Index registered 52, down from 52.7 in May. While still above the no-growth level of 50, it signaled the least marked improvement in manufacturing business conditions in nine months.

IHS Markit said slower rates of output and new business growth were the main factors weighing on the headline PMI in June, which more than offset a stronger contribution from the stocks of purchases component.

Unlike the ISM survey, which is more closely watched by economists, the IHS Markit report has been sliding lower since the peak seen in January. The June reading points to a stagnation, at best, in the manufacturing output data.

So which survey is best to believe?

“I guess the truth lies somewhere in the middle, but it is quite bizarre reading…. it seems like they measured two different countries, said Peter Boockvar, chief market analyst with The Lindsey Group, on his website, The Boock Report. “Likely methodology and seasonal adjustments helps to explain the discrepancy, but importantly, don’t just look at the ISM for your measure of the state of U.S. manufacturing.”

Jay H. Bryson, global economist at Wells Fargo Securities, said drilling down into the ISM report reveals broad-based strength in the factory sector in the 45 subcomponents measured.

“The outturns on these subcomponents mean that manufacturing production likely rebounded in June from the 0.4% monthly decline that it registered in May,” Bryson said. “Moreover, the forward-looking indicators also were strong, suggesting that manufacturing production should continue to expand in coming months.”

He did caution the ISM report had tended “to overstate strength in the factory sector in recent years.” For instance, manufacturing production was up 1.4% on a year-ago basis in May, a solid number to be sure, he said, but hardly a boom.

May Orders, Shipments Disappointing

Both of these reports were issued before one on Wednesday that showed factory activity in May improved little, while construction spending for the month was flat.

New orders for manufactured goods in May fell 0.8% from the month before, marking the second straight monthly drop and following a 0.3% April drop, the Commerce Department said.

Shipments of manufactured goods edged up just 0.1% in May, the fifth gain out of the last six months.

On the plus side, orders for non-defense capital goods minus aircraft, an indicator of business investment, increased 0.2% in May, rather than a decline of 0.2% as the department first reported. Also, shipments of these goods were revised upward to show a 0.1% gain, rather than a 0.2% drop.

Wells Fargo Securities noted while orders and shipments of core capital goods were positive in May, they are at their softest three-month pace of 2017, and recent readings from the ISM suggest activity may ramp up.

Construction Spending Flat

Another reported estimated construction spending during May at a seasonally adjusted annual rate of $1.23 billion, nearly the same as the upwardly revised April estimate, according to the Commerce Department. This is less than analysts were expecting, although it is 4.5% above the level from a year earlier.

Spending on private construction moved down 0.6% in May from April as both residential and non-residential construction fell. In contrast, public construction increased 2.1%, helped by a more than 5% gain in educational building. Highway construction declined nearly 1%.

During the first five months of this year, total construction spending is 6.1% above the amount for the same period in 2016.

“Public spending in May aside, the slowing in construction spending is not a positive signal for the housing sector nor for second-quarter gross domestic product," said analysts at Econoday. "The housing sector moved higher at the beginning of the year but has stumbled since.”

0 Comments