US Manufacturing Conditions Expand Further

The September ISM index Thursday showed US manufacturing sector activity expanded further, but at a modestly slower rate.

The headline PMI index fell to 55.4 from 56.0 in August, below expectations for a further increase to 56.6.

The new orders index fell to 60.2 from 67.6 in August, while the production reading fell to 61.0 from 63.3, though both continue to indicate solid expansion.

At the same time, inventories continued to contract, and supplier deliveries were still slowing, further positive signs that demand remains strong.

The employment index rose to 49.6 from 46.4 in August, just below the breakeven point. ISM said that the index suggests contraction, comments from respondents suggest that hiring has picked up except where there is a shortage of skilled workers.

The Markit manufacturing index released earlier Thursday was revised down slightly to 53.2 from the 53.5 flash estimate, but remained above the 53.1 reading in August.

Construction spending for August, released at the same time as the ISM report, rose by 1.4%, twice the 0.7% increase expected due to a surge in private residential building. Year-to-date construction spending was 4.2% above the same period a year earlier.

Private residential construction jumped by 3.7%. Calculations using the published data show that private new home construction rose by 4.2%.

Single-family building increased by 5.5%, more than offsetting a 0.1% decrease in multi-family building. Home remodeling was up 3.0%.

Private nonresidential construction spending fell by 0.3% on declines in several key industries, while public construction was up only 0.1%.

Released earlier on Thursday, personal income fell by 2.7% in August due to the expiration of initial jobless claims for many filers, particularly those whose states only provide three months of benefits in addition to the three months provided by the federal government under the CARES Act. Analysts expected a 2.6% decline.

Wages and salaries rose by 1.3%, as expected due to the further surge in payrolls and gains in the average workweek and hourly earnings.

Offsetting that gain, however, was the huge $686.9 billion decline in state unemployment benefits and a $56.9 billion decline in the “other” transfer payments category, which includes the government stimulus.

The additional income components moved higher. Proprietors income and rental income continued their trend of increases, while return on assets posted a small increase after six straight declines.

On the spending side, nominal PCE rose by 1.0%, exactly as expected. Goods spending rose by 0.2%, while services spending jumped by 1.4%. While spending increased for the fourth straight month, the rate of increase continues to slow.

After adjustment for a 0.3% increase in the PCE price index, real PCE rose by 0.7% following a 1.1% increase in July. Real PCE was up 37.0% at an annual rate through the first two months of the third quarter from the second quarter average after the 33.2% decline reported for the second quarter in Wednesday’s GDP report.

Core PCE prices rose by 0.3% in August after a 0.4% increase in July. The year/year rate ticked up to 1.6% from 1.4% in July. The rate was 1.9% in February before the shutdowns.

Released at the same time as personal income, initial jobless claims fell by 36,000 to 837,000 in the September 26 week, below the 850,000 level expected and the lowest since the start of the COVID-19 shutdowns. The four-week moving average fell by 11,750 to 867,750 in the week, continuing its downward trend.

The Labor Department noted that California is pausing its processing of new initial claims for the next two weeks, which Labor will adjust for by using the most recent week’s actual claims level as a substitute until the real data is received.

Continuing claims fell by 980,000 to 11.767 million in the September 19 week after holding steady in the previous week.

Kevin Kastner

Julie Ros
Written by

Julie Ros

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