U.S. factories keep gaining, but construction keeps slowing
WASHINGTON - Two economic reports out Friday morning appear to show a U.S. economy that's moving in two directions at once. While the nation's manufacturing sector expanded for the fourth straight month in June, construction spending unexpectedly fell in May for the second straight month.
Regarding the first, the Institute for Supply Management says its manufacturing index rose to 53.2 last month from 51.3 in May (anything above 50 signals growth). That's the strongest reading since February 2015 as the outlook for new orders and production both accelerated, while a measure of employment turned positive after signaling contraction in prior months.
Thirteen of 18 manufacturing industries reported growth last month, including primary metals and textiles.
The ISM report suggests U.S. factories are showing some signs of stability after being pummeled at the beginning of last year by a rising dollar, shuttered oil production and weak global economic growth.
The ISM, a trade group of purchasing managers, surveys about 200 U.S. companies each month.
Calling the report "much better than consensus expectations," Capital Economics' assistant economist Andrew Hunter said in a statement, "Today's report is clearly a positive development and suggests that the long-suffering manufacturing sector may finally be starting to recover. However, we would caution against expecting a major rebound any time soon."
Regarding the second report, U.S. construction spending in May showed weakness in all areas of building.
The Commerce Department says construction spending declined 0.8 percent in the month following a 2 percent plunge in April, which had been the biggest monthly setback in five years.
Spending on housing was flat as a 1.8 percent advance in apartment construction was offset by a 1.3 percent fall in single-family activity. Nonresidential construction was down 0.7 percent, with a contraction in the category that includes shopping centers.
Government activity dropped 2.3 percent to mark that category's third straight decline.
The back-to-back declines in overall construction spending caught analysts by surprise. They had been expecting a rebound following the big drop in April. Still, economists continue to expect construction will be a positive for the overall economy.
Summing up the report in a statement, Pantheon Macroeconomic's chief economist Ian Shephardson called it "disappointing, and a drag on Q2 growth." But he believes construction will recover. The lower spending in April and May, he said, "look very much like payback for the strength in Q1, when the warm weather lifted activity."