ISM Index, Construction Spending

In each Economic Update, the Research staff analyzes recently released economic indicators and addresses what these indicators mean for REALTORS® and their clients. Today’s update discusses the ISM Index and construction spending.

• Though the sun is scorching, the U.S. is definitely feeling  cool economic drafts from overseas. The European recession and China’s slower expansion have pushed down U.S. manufacturing activity. The latest reading on the ISM index (which surveys manufacturing managers) implies a mild contraction in U.S. manufacturing activity.
• ISM index fell to 49.7 in June and below the critical 50 mark for the first time since 2009. Above the 50 mark implies expansion while below 50 implies contraction.
• This data is one of most timely indicators of what is happening to economy and said to be Alan Greenspan’s favorite data. Production and manufacturing employment components still imply expansion, but the new orders fell below the 50 mark.
• In separate news, the overall construction spending continues to move higher. There were increases to both residential home construction and commercial real estate new buildings coming on line in May. Government construction activity fell for the fifth straight month, no doubt due to stringent budget tightening by state and local governments. Construction employment is bound to show solid gains in upcoming months.
• The combined impact of disappointing manufacturing data with positive private construction activity leads to a downgrading of economy such that GDP will be growing at around 1.5 percent in the second quarter (rather 2 percent as predicted earlier). Economic expansion is slow, but we are nowhere near a recession. Jobs overall are coming around very slowly, probably only 1.5 million net new jobs in 2012. That will mean that the unemployment rate will be stuck at 8 percent and change for the remainder of the year.