The nation's factories were humming along in August. The composite index of the ISM survey moved up in August to 56.3 from 55.5 in the prior month. Index levels exceeding 50 denote an expansion of activity. The composite index has held above 50 for thirteen consecutive months denote a growing factory sector. In August, indexes tracking production, employment, inventories, and imports rose, while that of new orders and supplier deliveries declined slightly, but their readings are still above 50.0. The new orders index warrants watching closely to establish if factories will continue to post growth. The export orders index shows a slower growth in August compared with July.
The export orders index posted an average of 56.0 in the July-August period; unless there is a hefty jump in September, the third quarter average of the index will fall short of the second quarter reading of 59.7. The export orders index has a noticeable positive relationship with real exports. The deceleration of the export orders index implies a possible slowing of growth in exports during the third quarter. In sum, the new orders and exports indexes will have a good tale to write about when the September survey results are published in October.
Moving on to China, the survey results of purchasing managers show an improvement in activity during August, albeit only a small gain. The composite index increased to 51.7 in August from 51.2 in July. Over in Europe, the Euro-zone Manufacturing PMI for August dropped to 55.1 from 56.7 in July. We need to see industrial production numbers for all the countries to confirm the message from these reports.
Construction - July Data Suggest Weak Q3
Construction spending fell 1.0% in July after downwardly revised 0.8% decline in July. Residential construction outlays (-2.6%) and that of the public sector (-1.2%) fell in July. Although non-residential construction spending increased 0.8% in July, the level is noticeably below the second quarter average which bodes poorly for the third quarter. A similar mathematical disadvantage is visible for the residential sector. The bottom line is that construction outlays are unlikely to make a positive contribution to third quarter real GDP.
Auto Sales Inch Down in August
Sales of autos fell slightly to an annual rate of 11.47 million in August from 11.54 million in July. The average for the July-August period exceeds the second average of 11.34 million units. If auto sales fail to exceed the pace seen in first two months of the quarter, the contribution of these purchases to consumer spending in the third quarter is unlikely to be significant.
