This trading week started with some encouraging data from the United States that should further the theme that the US economic recovery continues to gather pace.
Today's data showed activity in the manufacturing sector continuing to gain momentum, construction spending was positive for the first time in 5 months, and personal spending continuing to rise during March.
ISM Manufacturing Index Climbs to Highest Since July 2004
Let's start with the manufacturing sector with the ISM manufacturing index posting its strongest reading since July 2004.
As we can see of this breakdown from the report, new orders, production and employment all saw strong increases in April. That extraordinary strength in new orders bodes well for the recovery in the manufacturing sector and that we should see continuing growth from the sector. The employment index's rise means that hiring in the sector should pick up as well.
Here is a look at industrial production from our latest report (April 15th). So far the sector is enjoying a V-shaped recovery in output and as the manufacturing sector has been the spearhead of the recovery, it is welcome news that activity continues to improve.
Consumer Spending Up 0.6% in March
Personal spending data for the month of March showed a 0.6% increase, a positive sign that consumers are confident enough to open up their wallets. They did so even as incomes rose 0.3%, which meant they had to draw down their savings. The savings rate fell to 2.7%, the lowest level since September 2008. In our 1st quarter GDP data that came out last Friday, personal consumption was up 3.6% from the 4th quarter's 1.6%. With consumer spending making up 70% of GDP, a resilient consumer means that consumer spending may support the recovery going forward. That outcome was not guaranteed coming out of the recession as the concern was that consumers would retrench and work on paying down their debts.
Here is a visual look at personal expenditure (which are used in the calculations for GDP growth). The past two months consumption have picked up after a few slow winter months. Economists have been saying that the recovery would be anemic until the consumer sector became healthier, and while the recent data points to that happening the improvement is still modest compared to past recoveries.
Construction Spending Rises 0.2% in March
In addition to the positive reports from the manufacturing and consumer spending sectors, we got a third bit of good news in the form of construction spending. This index had been declining the past four months as the housing sector has been slow to recover from the recession. Before a small gain in employment during March, the industry was shedding an average of 72K net jobs per month during the prior 12 months.
Expectations had been for a 0.5% decline in construction spending but the figure came in showing a positive 0.2% change. However, on the downside, February's reading was revised downward to show a 2.1% decline compared to the originally estimated 1.3% drop.
While spending on residential construction retreated 1%, spending on commercial projects increased 0.8%. Roads, churches and hospitals each rose. By sector we see that private construction spending decreased by 0.9%, while public sector spending climbed 2.3% to $296.53 billion as the Obama administration pumped billions of dollars in the economy to spur it out of recession.
So while today's report is a small indication that the construction sector may be seeing a turning point, the increase are not coming from construction of residential properties. While the housing sector is experiencing a boost in sales from the expiration of a home-buyer tax credit, there is still a large amount of supply to be worked down before new starts have a strong rebound.