Manufacturing Sector Dodges Bullet with Positive ISM Report
- The August ISM Manufacturing Index fell slightly to a still-positive 50.6, better than expected.
- Construction Spending for July slipped by 1.3 percent as June spending was revised up.
- Q2 Productivity Growth was revised down to -0.7 percent. Unit Labor Costs gained 3.3 percent.
- Initial Claims for Unemployment Insurance for the week ending August 27 fell by 12,000 to 409,000.
Worries about a contraction in U.S. manufacturing, spurred by some negative regional Federal Reserve reports, were ameliorated this morning by the ISM Manufacturing Report, which showed that overall conditions in the manufacturing sector improved in August. The headline purchasing managers’ index fell slightly from July’s 50.9 to 50.6 in August, still above the break-even 50 mark. While the production sub-index was down for the month, inventory gains kept the headline number above 50. Of 18 reporting industries, 10 reported growth in August. Comments were mixed with some industries, such as paper and plastics, reporting strong conditions, while others, such as chemicals and machinery, reported softening conditions. The employment sub-index remained positive at 51.8, adding some support to expectations for tomorrow’s BLS Employment Report.
Construction spending for July dipped by 1.3 percent but that follows an upwardly revised June number. Overall construction spending remains about even with one year ago. Private residential construction dipped in July with a pullback in spending on existing homes. Private nonresidential spending was down slightly, by 0.4 percent, even as commercial construction increased. The government sector was the biggest drag, down 2.1 percent, consistent with the unwind of fiscal stimulus spending. Productivity growth for Q2 was revised down as expected, to -0.7 percent. Given the very strong gains in productivity through 2009 and 2010 it is not surprising to see some giveback as businesses seek to rebalance their labor needs. More notable is the upward revision to unit labor costs for Q2, now up to a 3.3 percent increase. A swing back toward increasing unit labor costs will begin to eat into the strong gains to the corporate profits that we have seen since mid-2009. Initial claims for unemployment insurance for the week ending August 27 dipped by 12,000 to hit 409,000. Claims data will be very muddy over the next month due to the combined effects of the now-resolved Verizon strike, end of summer seasonal issues, government cutbacks, and Hurricane Irene and its aftermath.