by Calculated Risk on 6/03/2013 11:35:00 AM

The Census Bureau reported that overall construction spending increased in April:

The U.S. Census Bureau of the Department of Commerce announced today that construction spending during April 2013 was estimated at a seasonally adjusted annual rate of $860.8 billion, 0.4 percent above the revised March estimate of $857.7 billion. The April figure is 4.3 percent above the April 2012 estimate of $825.1 billion.

Private construction spending increased, and public construction spending decreased:

Spending on private construction was at a seasonally adjusted annual rate of $602.0 billion, 1.0 percent above the revised March estimate of $595.9 billion. ...

In April, the estimated seasonally adjusted annual rate of public construction spending was $258.8 billion, 1.2 percent below the revised March estimate of $261.8 billion.

Click on graph for larger image.

This graph shows private residential and nonresidential construction spending, and public spending, since 1993. Note: nominal dollars, not inflation adjusted.

Private residential spending is 55% below the peak in early 2006, and up 36% from the post-bubble low.   Note: Residential spending was revised up for February and March.

Non-residential spending is 28% below the peak in January 2008, and up about 33% from the recent low.

Public construction spending is now 20% below the peak in March 2009 and at the lowest level since 2006 (not inflation adjusted).

The second graph shows the year-over-year change in construction spending.

On a year-over-year basis, private residential construction spending is now up 19%. Non-residential spending is flat  year-over-year. Public spending is down 5.1% year-over-year.

A few key themes:
1) Private residential construction is usually the largest category for construction spending, but there was a huge collapse in spending following the housing bubble (as expected).  Private residential is now slightly higher than private non-residential, and residential will probably be the largest category of construction spending in 2013.  Usually private residential construction leads the economy, so this is a good sign going forward.

2) Private non-residential construction spending usually lags the economy.  There was some increase this time for a couple of years - mostly related to energy and power - but the key sectors of office, retail and hotels are still at very low levels.

3) Public construction spending has declined to 2006 levels (not adjusted for inflation).  This has been a drag on the economy for 4 years. In real terms, this is the lowest level of public construction spending since February 2001. 

by Calculated Risk on 6/03/2013 10:00:00 AM

The ISM manufacturing index indicated contraction in May. The PMI was at 49.0% in May, down from 50.7% in April. The employment index was at 50.1%, down from 50.2%, and the new orders index was at 48.8%, down from 52.3% in April.

From the Institute for Supply Management: May 2013 Manufacturing ISM Report On Business®

Economic activity in the manufacturing sector contracted in May for the first time since November 2012, and the overall economy grew for the 48th consecutive month, say the nation's supply executives in the latest Manufacturing ISM Report On Business®.

The report was issued today by Bradley J. Holcomb, CPSM, CPSD, chair of the Institute for Supply Management™ Manufacturing Business Survey Committee. "The PMI™ registered 49 percent, a decrease of 1.7 percentage points from April's reading of 50.7 percent, indicating contraction in manufacturing for the first time since November 2012 and only the second time since July 2009. This month's PMI™ reading is at its lowest level since June 2009, when it registered 45.8 percent. The New Orders Index decreased in May by 3.5 percentage points to 48.8 percent, and the Production Index decreased by 4.9 percentage points to 48.6 percent. The Employment Index registered 50.1 percent, a slight decrease of 0.1 percentage point compared to April's reading of 50.2 percent. The Prices Index registered 49.5 percent, decreasing 0.5 percentage point from April, indicating that overall raw materials prices decreased from last month. Several comments from the panel indicate a flattening or softening in demand due to a sluggish economy, both domestically and globally."

Click on graph for larger image.

Here is a long term graph of the ISM manufacturing index.

This was below expectations of 51.0% and suggests manufacturing contracted in May for the first time since November 2012.

by Calculated Risk on 6/03/2013 09:07:00 AM

From MarkIt: Markit U.S. Manufacturing PMI™ – final data

The final Markit U.S. Manufacturing Purchasing Managers’ Index™ (PMI™)1 signalled a further improvement in manufacturing business conditions in May. However, at 52.3, up slightly from a six-month low of 52.1 in April and higher than the earlier flash estimate of 51.9, the PMI was consistent with only a modest rate of growth.
...
Firms linked the increase in production to higher new order requirements. Incoming new work rose modestly in May, with the rate of increase stronger than the six-month low recorded in April and faster than signalled by the earlier flash estimate.
...
Manufacturing employment in the U.S. rose further in May. Nonetheless, the rate of job creation was only modest and the weakest since last November.

“The May survey paints a downbeat picture of U.S. manufacturing business conditions. Output, order books and employment are all growing modestly, suggesting the sector is at risk of stalling. The main weakness is from export markets, where new orders fell marginally due to weakening global demand. [said Chris Williamson, Chief Economist at Markit]

“There is a possibility that growth may pick up again. The deteriorating export performance is being offset by rising demand in the domestic market, and large firms are reporting the strongest growth of new orders for just over a year.”

“However, the short-term outlook is one of subdued growth at best, suggesting the recent slowdown in the manufacturing economy will add to the likelihood of GDP growth weakening in the second quarter.”

The ISM PMI will be released at 10 AM today.

by Calculated Risk on 6/02/2013 08:00:00 PM

Note: Several sites list May auto sales on Tuesday - that appears incorrect. GM, Ford and others have already announced they will release results on Monday.

For some amusement, Jon Hilsenrath at the WSJ lists several of Fed Chairman Ben Bernanke's jokes today: Funnyman Ben Bernanke? You’ve Got to Be Kidding

A dozen years ago I was minding my own business teaching Economics 101 in Alexander Hall and trying to think of good excuses for avoiding faculty meetings. Then I got a phone call ...

From CNBC: Pre-Market Data and Bloomberg futures: the early S&P futures are up slightly and DOW futures are up 35 (fair value).

Oil prices have moved down recently with WTI futures at $91.42 per barrel and Brent at $99.94 per barrel.

• Schedule for Week of June 2nd

Monday economic releases:
• At 9:00 AM ET, the Markit US PMI Manufacturing Index for May. The consensus is for the index to be unchanged at 52.1.

• At 10:00 AM, ISM Manufacturing Index for May will be released. The consensus is for an increase to 51.0 from 50.7 in April. Based on the regional surveys, a reading at or below 50 is possible.

• Also at 10:00 AM, the Census Bureau will release Construction Spending for April. The consensus is for a 1.0% increase in construction spending.

• All day: Light vehicle sales for May. The consensus is for light vehicle sales to increase to 15.2 million SAAR in May (Seasonally Adjusted Annual Rate) from 14.9 million SAAR in April.

by Calculated Risk on 6/02/2013 03:07:00 PM

Some humor and interesting comments in a commencement speech from Fed Chairman Ben Bernanke : The Ten Suggestions

It's nice to be back at Princeton. I find it difficult to believe that it's been almost 11 years since I departed these halls for Washington. I wrote recently to inquire about the status of my leave from the university, and the letter I got back began, "Regrettably, Princeton receives many more qualified applicants for faculty positions than we can accommodate."¹

... I thought I would use my few minutes today to make Ten Suggestions, or maybe just Ten Observations, about the world and your lives after Princeton. Please note, these points have nothing whatsoever to do with interest rates. My qualification for making such suggestions, or observations, besides having kindly been invited to speak today by President Tilghman, is the same as the reason that your obnoxious brother or sister got to go to bed later--I am older than you. All of what follows has been road-tested in real-life situations, but past performance is no guarantee of future results.

1. ... Life is amazingly unpredictable; any 22-year-old who thinks he or she knows where they will be in 10 years, much less in 30, is simply lacking imagination. ...

6. ... Economics is a highly sophisticated field of thought that is superb at explaining to policymakers precisely why the choices they made in the past were wrong. About the future, not so much. However, careful economic analysis does have one important benefit, which is that it can help kill ideas that are completely logically inconsistent or wildly at variance with the data. This insight covers at least 90 percent of proposed economic policies.

10. Call your mom and dad once in a while. A time will come when you will want your own grown-up, busy, hyper-successful children to call you. Also, remember who paid your tuition to Princeton.

Congratulations, graduates. Give 'em hell.

¹ 1. Note to journalists: This is a joke. My leave from Princeton expired in 2005.

I enjoyed this speech, but Bernanke's comment that "careful economic analysis ... can help kill ideas that are completely logically inconsistent or wildly at variance with the data" is at odds with the sequestration budget cuts, "debt ceiling" nonsense, expansionary austerity, and more. I wish data and careful analysis could actually kill bad ideas, but I'm not sure what Paul Ryan would do with his life.