March ISM Manufacturing, European PMI, Feb. Construction

                U.S. Manufacturing Conditions Improve, Europe Goes the Other Way

  • The March ISM Manufacturing Index elevated to 53.4 percent with gains in production and employment.
  • The Eurozone Manufacturing Purchasing Managers’ Index for March fell to 47.7, indicating contraction.
  • Construction Spending for February decreased by 1.1 percent with declines in public projects.

U.S. manufacturing conditions continue to improve with expanding activity in the auto sector and strong energy exploration. The ISM’s U.S. manufacturing index increased in March to 53.4, solidly above the 50.0 threshold for an expanding manufacturing sector. The production sub-index increased by 3.0 percentage points in March and the employment sub-index was up by 2.9 percentage points. Expect to see another gain in manufacturing employment in the March payroll numbers due out Friday morning. The export sub-index cooled significantly from a hot 59.5 in February to a still-warm 54.0 in March. This does not indicate a contraction of manufacturing exports, just cooler growth. But that component of the overall index bears extra scrutiny over the next few months given challenging global macroeconomic conditions.  Out of 18 reporting industries, 15 reported growth in March, including apparel, leather and non-metallic mineral products (perhaps feeling the lift of firming residential construction activity). Anecdotal comments were favorable. However, some concern was noted over soft demand for computer and electronics products from China. The Eurozone manufacturing PMI ticked down in March from February’s 49.0 to 47.7, indicating deepening contraction. According to the report, there is evidence that manufacturing weakness is spreading from the periphery of the Eurozone to the core. The German PMI fell to 48.4, and the French PMI declined to 46.7, both countries now showing a contracting manufacturing sector.

Construction spending for February decreased by 1.1 percent. Private residential construction spending was unchanged for the month as housing starts decreased by 1.1 percent. Private nonresidential spending was down by 1.6 percent with losses across most categories. Total public construction spending was down by 1.7 percent as spending in the large highway and street category fell by 2.6 percent. Construction employment in the U.S. has stabilized over the last year after declining by 2.3 million jobs from April 2006 to January 2011.

Market Reaction: U.S. equities markets have reversed opening losses. Treasury yields are down. Oil is up to $104.37/barrel. The dollar is down against the yen and up versus the euro.

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