This week’s economic indicators have let some of the air out of the optimism that has been building about the nation’s financial recovery. Even NACM’s Credit Managers’ Index (CMI) showed declines in key areas after six straight months of gains, indicating that the rebound is weaker than once thought. In all, it gives more credence to the cautionary tale that the Congressional Budget Office (CBO) has painted that the U.S. recovery will be slow and tentative.
There was good news via the latest Institute of Supply Management (ISM) Report on Business that showed in August, economic activity in the manufacturing sector expanded for the first time in 18 months. This bright nugget of information was partnered with executives responding to ISM’s survey felt that the overall economy grew for the fourth consecutive month.
“The year-and-a-half decline in manufacturing output has come to an end as 11 of 18 manufacturing industries are reporting growth when comparing August to July,” stated Norbert Ore, CPSM, CPM, chair, ISM Manufacturing Business Survey Committee. “While this is certainly a positive occurrence, we have to keep in mind that it is the beginning of a new cycle and that all industries are not yet participating in growth.”
Industries that saw contraction in August were primary metals, plastic and rubber products, furniture, wood products, food, beverage and tobacco products, and machinery.
The ISM’s PMI rose 4% to 52.9%, which is the highest point it has been since June 2007. The increase was fueled by new orders, according to ISM’s New Order Index, which hit its highest level since December 2004. “The growth appears to be sustainable in the short-term as inventories have been reduced for 40 consecutive months and supply chains will have to restock to meet this new demand,” said Ore.
NACM’s CMI was expected to top the 50 level — the sign of expansion — but had stopped short at 48.1. NACM Economist Chris Kuehl was reassuring that that didn’t mean recovery wasn’t underway, it simply meant, “the credit system has not healed and it may be some time before there is a sense that the biggest issues are behind the economy.”
The U.S. Census Bureau and Department of Commerce reported a mixed bag of results for the week. The Census Bureau released that new orders for manufactured goods increased $4.6 billion in July, but unfilled orders were down for the tenth consecutive month, the longest streak of declines in the history of the agency’s publishing of the report since 1992.
The agency reported that for new orders of manufactured durable goods, it saw an increase of $8.2 billion in July to $169 billion, which was an increase of more than 5% and a strong rebound from the 1% decline experienced in June. Shipments of these goods also increased for the second straight month to $173.3 billion. Unfortunately, the same positives weren’t true for new orders and shipments for manufactured nondurable goods, which decreased in July, led by petroleum and coal products, which were down more than 7%, or $2.7 billion.
The building sector further let air out of the balloon as the Department of Commerce reported that the seasonally adjusted annual rate of construction spending in July edged lower by 0.2% to $958 billion. This was also down considerably from the $1.07 trillion in construction spending seen in July 2008. For the first seven months of the year, construction spending amounted to $543.8 billion, which was 11.4% below the $613.5 billion seen during the same period last year. Private nonresidential spending fell for the fifth straight month and public nonresidential spending fell 0.8% as state and local governments scaled back projects, despite the injection of federal stimulus dollars.
“We know from contractors’ reports that stimulus money is beginning to flow, but what should be a torrent by now is only a trickle in most categories,” said Ken Simonson, chief economist, Associated General Contractors of America (AGC). “Given that private construction will continue shrinking for several more months, public agencies charged with spending stimulus funds on construction must do so as promptly as possible.”
These declines in nonresidential spending are particularly bad news as the Federal Reserve Board released in August that banks had clamped down on real estate lending as charge-off and delinquency rates for real estate loans have soared to record highs.
One of the bright sides is that the Commerce Department found that new single-family home construction spending continued upwards another 7% in July after a 3.1% increase in June.
The economy’s roller coaster ride continues, but the ups and downs are far less severe and frightening.
Matthew Carr, NACM staff writer. Follow us on Twitter @NACM_National