October 2, 2006

ISM Manufacturing Report is Out; Expansion Continues, But Is Slowing (UPDATES: Other Econ Reports)

Filed under: Economy — Tom @ 10:32 am

Economists surveyed predicted this morning that the index would fall from 54.5 to 53.5. The actual came in at 52.9, the lowest reading since May of 2005. Any reading above 50 indicates expansion. It’s the 40th consecutive month of expansion, which extends the longest winning streak for manufacturing expansion in 27 years (first noted in this post back in June).

The bottom line from the Institute for Supply Management (ISM):

“The manufacturing sector continues on a trend of slowing growth in September. While there was little change in new orders and production when compared to August, significant slowing took place in employment and inventories. It’s apparent that manufacturing is losing momentum and feeling the effects of higher interest rates and a weaker housing market.”

The index has bounced up before when the pundits thought that contraction was at hand, and I don’t see any reason that it won’t do so again, especially given the strong ISM report for the Midwest region that was released Friday.

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UPDATE: August construction spending was “unexpectedly” up –

WASHINGTON (AP) — Spending on construction projects unexpectedly edged up in August as the best gain in nonresidential activity in 11 months offset another big decline in home building.

The Commerce Department reported that construction spending rose by 0.3 percent to a seasonally adjusted annual rate of $1.20 trillion. It followed a huge 1 percent decline in July and represented the best showing in five months.

Analysts had been forecasting construction spending would drop in August, reflecting continued weakness in residential construction. However, a big drop in residential activity was offset by strength in office building and other nonresidential projects. Spending by state and local governments also rose.

UPDATE 2: Housing Bubble believers will have a tough time swallowing this report

WASHINGTON (Reuters) – Pending sales of U.S. homes rose 4.3 percent in August in a sign the nation’s housing market might be stabilizing, a trade association said on Monday.

The National Association of Realtors said its Pending Home Sales Index, based on contracts signed each month, rose to 110.1 from 105.6 in July.

It was the first increase since May. Still, the index was 14.1 percent lower than August 2005, when the nation’s housing market was near its peak.

“Our sense is that home sales may have reached a low in August,” said NAR’s chief economist David Lereah.

The overstock of homes for sale in the United States should be drawn down as fewer new homes come on the market, he said.

By early next year, he predicted, “home prices will rise, but at a slower pace than historic norms.”

UPDATE 3: Chips ahoy

Chip Sales Set Record in August

Oct 2, 2:22 PM (ET)

SAN JOSE, Calif. (AP) – Semiconductor sales worldwide surged to a monthly record of $20.5 billion in August, fueled by higher demand for memory chips used in PCs and mobile gadgets such as cell phones and digital cameras, an industry group reported Monday.

The figure was more than 10 percent higher than the $18.6 billion reported in August 2005, and a slight increase from the $20.1 billion reported in July, the Semiconductor Industry Association said.

The previous one-month record for worldwide chip sales was $20.4 billion in November 2005.

Much of the growth in August was driven by higher sales of dynamic random access memory chips, which are widely used to store information in computers and other electronics. Sales of DRAM chips increased by 31.4 percent from a year ago, and 7.5 percent from July.

Somebody must think there will be a big demand for consumer electronics during the Christmas buying season.

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