Wanted to talk about a few recently released reports that looked at the dollar values of construction and manufacturing in America. Given that April was the first full month after wide-ranging tariffs were announced and a lot of upheaval in the financial markets followed, seems to be worthwhile to look at how businesses and consumers may have responded.
Start with construction, where
the new report from the Census Bureau indicates new construction in the US continued to decline in April, especially on the residential side. The dollar value of residential construction dropped by 3.9% between January and April, and much of that drop is in “private residential improvements”, which is work done on previously-completed homes. But there also was a notable decline that happened in home-building construction in the last half of 2024
Also interesting is that the public sector kept the construction sector from falling even further, especially in road-building.
In April, the estimated seasonally adjusted annual rate of public construction spending was $513.5 billion, 0.4 percent (±1.3 percent)* above the revised March estimate of $511.3 billion. Educational construction was at a seasonally adjusted annual rate of $110.9 billion, 0.1 percent (±1.5 percent)* below the revised March estimate of $111.0 billion. Highway construction was at a seasonally adjusted annual rate of $146.3 billion, 0.5 percent (±4.1 percent)* above the revised March estimate of $145.5 billion.
Public health care (+$0.5 billion/+3.3%) and the combined total of govt office and commercial construction also helped the sector last month (+$0.5 billion/+1.9%). But it still isn’t a good picture for construction, which has been a good growth sector for much of the 2020s.
A decline also happened in April for new orders for manufacturers, falling below not only the elevated levels of March, but also what we had in February.
If you take out the volatile transportation category (especially aircraft), manufacturing orders declined by a seasonally-adjusted $2.6 billion in March and $2.4 billion in April, and shipments also declined in those two months.
That report from the Commerce Department on April orders came one day after
the Institute for Supply Management said manufacturing kept declining in May. "The Manufacturing PMI® registered 48.5 percent in May, 0.2 percentage point lower compared to the 48.7 percent recorded in April. The overall economy continued in expansion for the 61st month after one month of contraction in April 2020. (A Manufacturing PMI® above 42.3 percent, over a period of time, generally indicates an expansion of the overall economy.) The New Orders Index contracted for the fourth month in a row following a three-month period of expansion; the figure of 47.6 percent is 0.4 percentage point higher than the 47.2 percent recorded in April. The May reading of the Production Index (45.4 percent) is 1.4 percentage points higher than April's figure of 44 percent. The index continued in contraction in March for the third straight month after two months of expansion preceded by eight months of contraction. The Prices Index remained in expansion (or 'increasing') territory, registering 69.4 percent, down 0.4 percentage point compared to the reading of 69.8 percent in April. The Backlog of Orders Index registered 47.1 percent, up 3.4 percentage points compared to the 43.7 percent recorded in April. The Employment Index registered 46.8 percent, up 0.3 percentage point from April's figure of 46.5 percent.
"The Supplier Deliveries Index indicated a continued slowing of deliveries, registering 56.1 percent, 0.9 percentage point higher than the 55.2 percent recorded in April. (Supplier Deliveries is the only ISM® Report On Business® index that is inversed; a reading of above 50 percent indicates slower deliveries, which is typical as the economy improves and customer demand increases.) The Inventories Index registered 46.7 percent, down 4.1 percentage points compared to April's reading of 50.8 percent.
"The New Export Orders Index reading of 40.1 percent is 3 percentage points lower than the reading of 43.1 percent registered in April. The Imports Index plunged into extreme contraction in May, registering 39.9 percent, 7.2 percentage points lower than April's reading of 47.1 percent."
Spence continues, "In May, U.S. manufacturing activity slipped further into contraction after expanding only marginally in February. Contraction in most of the indexes that measure demand and output have slowed, while inputs have started to weaken:
And yet I look at the Atlanta Fed’s GDP Now estimates, and take a look at what they think will happen to economic output as a result of this information.
Somehow a decline in residential construction and new orders in manufacturing means
more growth? I looked into their "contributions" number trying to figure out why, and I don’t see how you get residential home building becoming a positive or why they say consumer spending projections got better in the last 2 days.
Likewise, the stock market keeps climbing for no real reason. The DOW was up another 214 points today because….of optimism that tariffs won’t damage the economy more than they thought? People still pumping the AI Bubble?
Out in the manufacturing and construction sectors in America, I’m not seeing much in the data that would indicate anything beyond a drop in activity in April. And other than
the end of the import surge that we saw in the first 3 months of the year, what has changed in the last month to make us think the economy is going to go back to strong GDP growth?
I just don’t get it. Are people just that tricked by the short-covering and dumb runup that we’ve had in the stock market?
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