An update on construction and manufacturing in the US

While data revisions stretching back to 2004 show that the downturn in US construction was deeper than previously thought, they also offer hints that the worst may be over. Construction spending slipped 0.2% during May, but this followed solid increases in March and April.

Single-family construction increased 0.8% in May, a figure likely to drop for a few months. Single-family housing starts dropped 17.2% in May, and are likely to drop again in June because of the expiring of the second homebuyers' tax credit. 

Multi-family housing construction spending fell 6.3% in May - dropping to a US$ 13 billion annual rate, the lowest level since April 1994. The only good thing about these awful numbers is that spending levels are not likely to fall much further because they are almost touching the bottom.

The revised numbers show that private non-residential construction spending has levelled off since February.  This is good news, considering that this has been the economy's worst performing sector since the recession ended. Still, it is forecast that spending levels for this category will continue to drop because a number of key categories, including office, commercial, lodging, and higher education are still trending down.

Public construction increased for the third straight month in May because of solid increases in infrastructure spending. Increases in infrastructure spending should keep public construction in the black for the next two years.

Manufacturing industries

Manufacturing industries throttled back on production and hiring in June, as the growth of new orders slowed down quite a bit.

In general, a moderate slowdown in forward momentum was expected, and that is evident here. With the overall index near 56, and the production index still sailing above 60, the manufacturing sector still has considerable forward momentum.

While the growth of new orders slowed quite a bit, inventories are still reported to be relatively lean. There are no signs of any unwelcome pressures in this report.

The bottom line

Forward momentum is slowing in the manufacturing sector, but there are no signals in this report that an abrupt growth slowdown is in the cards. On top of this, prices pressures have virtually vanished in the short space of a month. Lower input price pressures will provide a boost to corporate profits in the second quarter - a favourable situation that is likely to persist in the third quarter. Finally, the Federal Reserve System is expected to be on extended hold in this environment, and that is being discounted into lower bond yields and lower mortgage rates.

Read the article online at: https://www.worldcement.com/the-americas/06072010/an_update_on_construction_and_manufacturing_in_the_us/