Construction Spending, Manufacturing Show Signs of Moderation

MBA (6/3/2008 ) Velz, Orawin
Total construction spending fell 0.4 percent in April. The Department of Commerce revised spending in March upward to a drop of 0.6 percent from the 1.1 percent drop reported earlier.
Public construction spending fell 0.3 percent. Private construction spending dropped 0.5 percent, as the 2.3 percent decline in private residential construction spending outweighed the increase in private nonresidential construction spending of 1.6 percent. Private residential construction spending dropped 3.6 percent, as single-family construction spending fell 4.4 percent while multifamily construction spending rose 0.4 percent. From a year ago, private residential construction spending has declined 21.0 percent.

The jump in private nonresidential construction spending was the third consecutive monthly increase and the biggest since September 2007. Private nonresidential construction spending was up 15.4 percent from a year ago.

A separate report showed that the nation’s manufacturing activity declined again in May but at a more moderated pace, according to the Institute for Supply Management (ISM) manufacturing survey. The manufacturing index rose to 49.6 from 48.6 in April. A reading below 50 indicates a contraction in the manufacturing sector. Although this was the fourth consecutive reading below 50 in the past five months, the trend in the index suggested that manufacturing slump was not worsening.

Forward-looking components of the index suggested an improvement in activity in the near term. New orders increased to 49.7 from 46.5, while the production index rose to 51.2 from 49.1. Manufacturers continued to see export orders increase from strong demand for capital goods overseas, which has helped support the overall activity. The export component rose two points to 59.5, the highest reading since May 2004. Employment outlook remained gloomy: the employment component of the index continued to hover at the low level of 45.5. Manufacturers have shed jobs every month since July 2006, and that trend will likely continue.

The component related to prices continued to show a worrisome trend, with the prices that manufacturers are paying for inputs trending up. While the decline in the dollar has helped boost exports of manufacturing goods, it has increased imported input prices. The prices-paid index increased two points to 87.0 and has reached its highest reading since May 2004. Overall, manufacturers are facing rising costs and weakening domestic demand.

Stocks declined following announcement of the departure of Wachovia CEO G. Kennedy Thompson. Later, stocks extended their declines after Standard & Poor's lowered its debt ratings on Merrill Lynch & Co., Lehman Brothers Holdings Inc. and Morgan Stanley. The Treasury market rallied in a flight to quality. The yield on 10-year Treasury notes fell 11 basis points to 3.95 percent by mid-Monday afternoon.