25 January 2022

Positive US Manufacturing Data And Construction Spending Fuels Stock Market Gain

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The US manufacturing ISM rose to 50.9 in June after a reading of 49.0 in May, above the consensus forecast (50.5) and the strongest reading since March (51.3).  In terms of the key underlying components, there was an improvement in new orders (51.9, previous: 48.8) that was  offset by a decline in the employment index (48.7, previous: 50.1).  The strength in the headline was due to the production index which climbed to 53.4 after a May reading of 48.6.  There were two factors underlying this increase. The first was a rebound in the inventories component, which improved to 50.5 from 49.0 and suggests that inventories are being rebuilt after the index spent the prior three months in contractionary territory. The second was new export orders, which rose to 54.5 from 51.0.  Notably, those three indices are the only ones which stand above their six-month averages.  

Construction spending rose 0.5% on the month, a bit below the consensus forecast (0.6%).  Private residential construction rose 1.2% on the month, which was offset by a decline of 1.4% in private nonresidential spending while public construction spending rose 1.8% on the month.  When combined with revisions, this report suggested stronger residential construction spending in Q2 that was offset slightly by softer structures investment.  On the whole, this bumped consensus GDP tracking estimate for 2nd Quarter to 1.5% quarter or quarter from 1.4% previously and consistent with 2nd quarter average of the manufacturing ISM to 50.2.

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