Tuesday, August 4, 2020

Manufacturing, housing, vehicles: the economy “wants to” recover

 - by New Deal democrat

Yesterday we got two of the three typical leading data metrics that start the month: the ISM manufacturing index and construction spending. The third, vehicle sales, will be reported later today but is much less important than it used to be because US manufacturers only report actual numbers at the end of the quarter.

The ISM manufacturing new orders index is a good short leading indicator for the producer side of the economy. And it roared back to very positive in July:

The overall ISM index came in at a solid 54.2 (any number above 50 shows expansion), and the new orders sub-index rose from June’s 56.4 to 61.5, which isn’t just positive, but can be considered a “booming” number.

Meanwhile, residential construction spending (blue in the graph below), which is the least volatile of all the housing metrics, continued to show a decline in June, with construction now off -9.9% from its February peak:

Housing permits (red) lead residential construction spending generally by several months (because the expenses in actually building a house come after the permit is granted), and these have decisively rebounded in the past two months. So I expect construction spending similarly to rebound in a month or two. 

Finally, although vehicle sales reported by the manufacturers is much less valuable now, the BEA did report June’s sales several days ago. These also showed a rebound, rather large for passenger cars and light trucks, and a small one for the usually more leading heavy weight truck sales:

The picture sketched by these three metrics of leading sectors of the economy is a strong rebound in manufacturing, a decent rebound taking shape in housing and  cars, and a more slight rebound in trucks. Left to its own devices - I.e., if there were competent leadership executing policy containing the coronavirus - the economy wants to recover.