Global manufacturing activity strengthened in August, led by a major gain in the U.S. This provided further evidence that the world-wide recession is ending. As a result, you need to quickly sharpen your interview skills because many jobs should be opening up in the months ahead!
U.S. STATISTICS:
U.S. factories saw output rise in August for the first time since January 2008. This is another sign the recession may be ending.
Separately, construction spending in the U.S. unexpectedly fell during July, dragged down a big drop in the commercial sector that offset strength in the housing industry. However, a forecasting gauge of home sales rose more than expected in July in another round of good news for the U.S. housing market.
On Tuesday, the Institute for Supply Management (ISM) reported that its manufacturing index for last month came in at 52.9, from 48.9 in July and 44.8 in June. Numbers over 50 indicate growth. This reading in August was consistent with what economists had expected to see.
The manufacturing sector has for much of this year been on a steady path toward growth. The slow recovery of this hard-hit arena has buoyed confidence the rest of the economy is emerging from the worst recession of the post-war period.
“The year-and-a-half decline in manufacturing output has come to an end, as 11 of 18 manufacturing industries are reporting growth,” said Norbert Ore, who directs the survey. “The growth appears sustainable in the short term, as inventories have been reduced for 40 consecutive months and supply chains will have to re-stock to meet this new demand,” he added.
The details of the ISM report were generally positive. The private research group reported that its new orders index, a leading indicator of future activity, moved to 64.9 in August from July’s 55.3, while the production index hit 61.9 from 57.9. The inventories index was 34.4, from 33.5 in July.
Hiring remained a bleak spot, with ongoing contraction. The employment index stood at 46.4, after July’s 45.6.
Meanwhile, inflation heated up, with the prices index at 65.0. The measure stood at 55.0 a month before.
Construction Spending Declines
Total construction spending decreased by 0.2% to a seasonally adjusted annual rate of $958.04 billion compared to the prior month, the Commerce Department said Tuesday.
Wall Street had expected spending would increase, by 0.2%.
Overall construction spending rose 0.1% in June; originally, June spending was seen 0.3% higher.
Year over year, spending in July was down 10.5% since July 2008.
Spending in July on residential construction projects soared 2.3% to $254.2 billion. Residential spending fell 0.3% in May, a revision from the originally reported increase of 0.7% for the month. Year over year, residential spending was 26.9% below the July 2008 level.
The housing market seems to be recovering as the economy tries turning around following the worst recession since World War II. Groundbreakings on single-family homes have gone up five straight times. New-home sales have climbed five in the latest seven months as buyers help themselves to low interest rates, a federal tax credit, and bargain prices.
As housing picks up, commercial construction is sliding. Tuesday’s data showed non-residential construction spending decreased 1.0% during July, a broad-based decline that included falling outlays for hotels, schools, hospitals and roads. Year over year, spending for commercial construction was down 2.6%. Vacancy rates for office space have been rising and rents have fallen. Also, financing is difficult.
Construction spending in the private sector during July increased by 0.1% to $630.4 billion. Spending fell 1.6% in June.
Spending in July by the government on construction dropped after five straight increases. While the recession has cost municipalities money, stimulus from Washington has buoyed spirits. Infrastructure spending tied to stimulus is seen down the road.
The 0.7% drop in July public-sector construction spending, to $327.6 billion, followed a June surge of 3.6%. Federal government construction outlays climbed 0.8% in July. State and local spending, which is much larger than federal spending in dollars, decreased by 0.8%.
Pending Home Sales Rise
The National Association of Realtors’ index for pending sales of previously owned homes rose 3.2% to 97.6 from 94.6 in June, the industry group said Tuesday.
Additionally, the NAR pending sales index, based on signed contracts for previously owned homes, was 12% above the level of 87.1 a year earlier in July 2008.
In fact, the index is at the highest level since June 2007, when it was 100.7. Also, the jump in sales marks the sixth straight climb in as many months.
The rise in contract activity for pending home sales is higher than expected. Private analysts projected pending sales would grow just 2% during July.
The data are yet another sign of a stabilizing housing market. In July, new-home sales rose for the fourth month in a row and existing-home sales hit a two year high on an annual basis during the month, according to government data. Additionally, the S&P/Case-Shiller index showed that home prices in major U.S. cities rose for the second straight month in June. These are all signs that while the housing market is still hurting, recovery is beginning to take hold.
“The recovery is broad-based across many parts of the country,” said NAR chief economist Lawrence Yun in a statement. “Housing affordability has been at record highs this year with the added stimulus of a first-time buyer tax credit.”
In its monthly forecast on the industry, the NAR projected existing-home sales at 5.24 million in 2010 and 4.97 million in 2009. That compares to 4.91 million in 2008.
The median price for an existing home is seen at $178,200 in 2010 and $172,600 in 2009. It was $198,100 in 2008.
A month ago, the NAR forecast 2009 sales at 4.91 million and 2010 sales at 5.16 million. The 2009 median price was projected at $174,100 and the 2010 price at $179,800.
The NAR’s pending home sales index was designed to try to measure which way the housing market will go in the future. It is based on pending sales of existing homes, including single-family homes and condominiums. A home sale is pending when the contract has been signed but the transaction hasn’t closed. Pending sales typically close within one or two months of signing.
By region, pending sales in the Northeast fell 3.0% in July from June; but they were up 4.7% since July 2008. Midwest activity fell 2.0% in July from June; it’s up 8.1% since July 2008. Activity in the South grew 3.1% in July from June; it has grown 12.0% since July 2008. In the West pending sales rose 12.1% in July from June; they’re up 20.0% since July 2008.
The ISM said U.S. factories saw output rise for the first time since January 2008 in August, with the purchase-manager’s index hitting 52.9 from 48.9 in July. Meanwhile, China posted one of the strongest gains in PMI, according to data provided by Markit Group, rising to 55.1 from 52.8 a month earlier. Reading above 50 indicate expansion in the manufacturing sector. Though factory activity was stronger in most countries, the majority of the world continues to see contracting activity and gains weren’t universal. The euro zone’s manufacturing sector improved on the back of gains in Germany and France, but Spain and Italy posted declines.
The U.K. showed unexpected weakness, as the nation’s manufacturing sector shifted into contractionary territory. August’s reading came in at 49.7 from 50.2 a month earlier.
WORLD-WIDE MANUFACTURING STATISTICS BY COUNTRY:
Country
August PMI (versus) July PMI Monthly Change Expanding or Contracting
Australia 51.7 44.5 +7.2 Expanding
China 55.1 52.8 +2.3 Expanding
Czech Republic 47.1 43.4 +3.7 Contracting
Euro Zone 48.2 46.3 +1.9 Contracting
France 50.8 48.1 +2.7 Expanding
Germany 49.2 45.7 +3.5 Contracting
Hong Kong 52.8 49.9 +2.9 Expanding
Hungary 45.8 49.2 -3.4 Contracting
Ireland 44.0 43.7 +0.3 Contracting
Italy 44.2 45.4 -1.2 Contracting
Poland 48.2 46.5 +1.7 Contracting
Russia 49.6 48.4 +1.2 Contracting
South Africa 39.3 37.3 +2.0 Contracting
Spain 47.2 47.3 -0.1 Contracting
Spain 47.2 47.3 -0.1 Contracting
Sweden 52.4 50.5 +1.9 Expanding
Switzerland 50.2 44.3 +5.9 Expanding
Taiwan 55.0 54.9 +0.1 Expanding
Turkey 53.7 54.0 -0.3 Expanding
U.K. 49.7 50.2 -0.5 Contracting
U.S. 52.9 48.9 +4.0 Expanding
Sources: Markit, HSBC, ISM, Credit Suisse, Australian Industry Group/PriceWaterhouseCoopers
