Weekly Industry Crib Sheet: Industrial Production Rebounds Even as Purchases Slide

Plus:
Housing Starts Rise, Signaling Market Srength
China’s Manufacturing Contracts Again
Leading Economic Indicators Rise
Jobless Claims Inch Up


Initial estimates show that manufacturing purchases decreased in June. Despite the slowdown, production continues to expand, albeit slowly.

Markit Economics’ Flash U.S. Manufacturing Purchasing Managers’ Index (PMI) dipped slightly to 52.2 from 52.3. Indicators over 50 signal expansion. The index showed that manufacturing production rose from 53.9 from 52.7, indicating expansion at a faster rate. June’s number is a positive sign after May hit a seven-month low.

New orders increased from 53.3 to 53.7, which helped contribute to June’s growth. The number is the highest in three months.

Costs for manufacturing are also on the rise. Input prices jumped up to 54.6 in June from 53.4 in May. In a release accompanying the report, Markit writes that these costs are being passed, in part, on to customers, as output prices remain in expansion at 51.7, although this is a slight decrease over May’s 51.9.

“The U.S. manufacturing sector appears to have remained stuck in a low gear in June, rounding off the weakest quarter since the third quarter of last year,” said Chris Williamson, chief economist at Markit, in a statement. “With the average PMI reading down to 52.2 (compared to 54.9 in the first three months of the year), slower growth in the goods-producing sector looks likely to have acted as a drag on the wider economy, pulling GDP growth down from the annualized rate of 2.4% seen in the first quarter.”

The Flash PMI index is based on 85 percent of monthly replies. Final data for June will be published July 1.

Housing Starts Rise, Signaling Market Strength

Overall U.S. housing starts rose 6.8 percent in May to a seasonally adjusted annual rate of 914,000 units, marking a 29 percent increase from a year ago, the Commerce Department reported last week. Builder confidence is also up for newly-built single family homes, rising eight points to a 52 reading on the latest National Association of Home Builders/Wells Fargo Housing Market Index (HMI), marking the largest spike in over a decade.

The increase in housing starts was due to a 24.9 percent uptick in construction of multi-family units such as apartments, as consumers opt to rent instead of purchase property, The Wall Street Journal reported. Despite the HMI’s spike in builder confidence on single-family homes, new starts rose only slightly by 0.3 percent.

However, the Commerce Department report indicates that builders expect more demand in the upcoming months, as building permits for single family homes increased by 1.3 percent in May, marking the highest level since 2008.  Meanwhile, the HMI, which measures builder perceptions of sales expectations, rose nine points to 61, marking the highest level since 2006. Index numbers over 50 indicate that more builders view conditions as good than poor.

“This is the first time the HMI has been above 50 since April 2006, and surpassing this important benchmark reflects the fact that builders are seeing better market conditions as demand for new homes increases,” said NAHB Chairman Rick Judson, in a statement. “With the low inventory of existing homes, an increasing number of buyers are gravitating toward new homes.”

China’s Manufacturing Contracts Again

HSBC’s Flash reading of its China Manufacturing Purchasing Managers’ Index dropped to 48.3 in June, the lowest level in nine months. An index reading under 50 represents contraction.

The June figure is the second month in a row of manufacturing contraction in the region, after the May index came in at 49.2. June’s Flash reading, which is an initial estimate for the first half of the month, is below economists’ expectations of 49.4.

Many of the leading indicators, including new orders, new export orders, employment, and purchases all contracted faster. The only increase was in inventories, which also represents negative movement.

Aggravating the economic situation is one of the worst credit crunches in a decade. The International Business Times reported that, “If the overnight lending rates do not stabilize and begin to fall and the economy does not begin to form a base, China could really be in for a drastic slowdown.”

But Businessweek reported that a slowdown in lending could be a positive sign for China. Credit in China grew 22 percent in May and is on track to hit 200 percent of the nation’s GDP, according to Mark Williams, an economist for London-based Capital Economics.  A cutback in interbank lending, Businessweek writes, would mean that “China’s top leaders are still serious about broader economic restructuring and that they mean business when it comes to cleaning up some of the frothiness in the banking sector.”

Leading Economic Indicators Rise

The Conference Board’s index of leading economic indicators saw a slight uptick in May. The 0.1 percent rise last month follows a revised 0.8 percent increase in April, and 0.3 percent decline in March.

The index compiles 10 economic indicators of the U.S. economy’s direction and health for the next three to six months. Three of the 10 metrics — stock prices, credit availability, and government bond markets — were up last month.

MarketWatch quoted Conference Board economist Ataman Ozyildirim as saying, “Widespread gains in the leading indicators over the last six months suggest there is some upside potential for economic activity in the second half of the year.”

But uncertainty remains. Economists worry about the possible aftereffects should the Federal Reserve scale back its $85 million monthly bond buyback stimulus. Ken Goldstein, another economist at The Conference Board, said in a statement that cutbacks in public spending programs and the trade deficit remain “headwinds” to further growth.

Jobless Claims Inch Up

For the week ending June 15, advanced figures for seasonally adjusted claims rose by 18,000 to 354,000. Unadjusted data showed an increase of 2,949 from the previous week, totaling 335,320.

The four-week moving average for new claims, which compensates for week-to-week volatility, rose 2,500 to 348,250.

The total number of insured unemployed for the week ending June 1, the most recent week for which there is data, was 4,533,560. This is an increase of 18,115 from the previous week. This is 22 percent less than the same time last year, when 5,818,334 persons claimed benefits.

Despite the improvements over the last few years, a recent Gallup poll finds that Americans are scarcely more optimistic about job prospects than they were in 2011. The survey finds that 28 percent of adults in the U.S. say now is a good time to find a job. Twenty-six percent gave the same response two years ago.

 

 

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