Friday data fails to impress: Manufacturing PMI, construction spending

FRIDAY DATA FAILS TO IMPRESS: MANUFACTURING PMI, CONSTRUCTION SPENDING

Investors wrapped up a week and embarked on the last month of the year with 'meh' tidings from the manufacturing and construction sectors.

Activity at American factories shrank at a steady pace in November, according to the Institute for Supply Management's (ISM) purchasing managers' index (PMI) (USPMI=ECI) marking the index's 13th consecutive month in contraction territory.

The index repeated October's 46.7 print, while analysts expected a slightly less-bad reading of 47.6.

A PMI number south of 50 signifies monthly contraction.

Delving beneath the headline, while the new orders component improved a bit, employment worsened. The prices paid element - an inflation predictor - rose to 49.9, hovering just below the magic contraction/expansion dividing line.

"The U.S. manufacturing sector continued to contract at the same rate in November as compared to October, again posting a reading of 46.7 percent," writes Timothy Fiore, chair of ISM's Manufacturing Business Survey Committee. "Demand remains soft, and production execution is slightly down compared to October as panelists’ companies continue to manage outputs, material inputs and — more aggressively — labor costs."

The mood among the survey's respondents seemed generally morose, with phrases like "the economy appears to be slowing dramatically," and "labor still a challenge" and "bringing down inventory levels considerably" peppered throughout.

Here's a breakdown of ISM PMI along with the select subcomponents of the index:

Not to be outdone, S&P Global also released its final stab at manufacturing PMI (USMPMF=ECI), repeating its initial "flash" reading of 49.4.

"Orders have in fact risen in only three of the past 18 months, reflecting a prolonged period of subdued post-pandemic demand, in turn linked to consumers switching their spending to services such as travel and recreation, and business customers reducing excess inventories which had been accumulated during the supply concerns of the pandemic," says Chris Williamson, chief business economist at S&P Global Market Intelligence.

The dueling PMIs differ in the weight they allot to their various components (new orders, employment etc).

Here's a look at the extent to which the indexes agree (or not):

Finally, a report from the Commerce Department reveals expenditures on U.S. construction projects (USTCNS=ECI) increased by 0.6% in October.

The fact that the number beat consensus by 20 basis points is cold comfort, as the September's increase was slashed in half.

Digging into the data, residential construction spending was once again the bright spot, rising 1.2% and offsetting the 1.5% decline in outlays on commercial projects.

Noting that the report accounts for about 5% of U.S. GDP, Rubeela Farooqi, chief U.S. economist at High Frequency Economics says "the data show slowing momentum across residential, ex-improvement, nonresidential and public spending to start Q4."

(Stephen Culp)

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