July ISM Manufacturing, UI Claims, June Construction Spending

More Good News as Key Manufacturing Indicator Jumps 

  • The ISM Manufacturing Index for July increased to 55.4 percent, well above expectations.
  • Construction Spending for June dipped by 0.6 percent as public projects continued to shrink.
  • Initial Claims for Unemployment Insurance fell by 19,000 for the week ending July 27, to hit 326,000.

The day after a surprising Q2 GDP report and a stronger-than-expected July ADP employment report we get another upside surprise from the ISM-Manufacturing Index. The index climbed from a barely positive 50.9 in June to a solidly expansive 55.4 in July. Most, but not all, index components are in expansion territory, led by production, new orders, imports and employment. Drags are still coming from backlog of orders, inventories, customers’ inventories and prices. Of the 18 reporting industries, 13 said they were growing in July, paced by furniture, textiles, paper, wood, nonmetallic minerals, electrical and appliances. It looks safe to say there is a housing theme in that list. Four industries reported contracting; plastics and rubber, apparel, leather and machinery. Anecdotal comments were generally neutral to positive.

The big picture on construction is not as positive. Total construction spending for June slipped by 0.6 percent. Private residential spending stalled in June, consistent with the recent plateau visible in housing starts and permits. Given recent solid job growth and the improving trend in consumer confidence, the Q2 plateau in residential construction will transition to more gains through the second half of the year. Private nonresidential construction fell by 0.9 percent, with most major categories down. One exception was power plant construction spending, which maintained its increasing trend in June. Total public construction spending fell by 1.1 percent for the month, consistent with the wind down in fiscal stimulus spending and the federal budget sequester.

Initial claims for unemployment insurance fell by 19,000 for the week ending July 27, to hit 326,000. This is the lowest weekly tally since January 2008. Initial claims data have been fairly volatile this year. This summer, in particular, seasonality stemming from the usual summer auto plant closures appears to have been a factor.  That effect should be diminishing, and if we can maintain a sub-330,000 rate in the weeks ahead, that would be another signal to the Federal Reserve that economic conditions are improving, adding to the expectation that the QE wind down will begin in mid-September.

Market Reaction: U.S. equity prices opened higher. Treasury rates are up at the long end of the yield curve. Oil is up to $107.39/barrel. The dollar is up against the yen and down versus the euro.

Economic Alert 08012013

For a PDF version of this Comerica Economic Alert, click here: ISM-MF 080113.

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