– by a New Deal Democrat
AAs usual, we start the month with reports on production from last month and construction from two months ago.
The ISM manufacturing index has a 75-year track record as a very reliable leading indicator. According to the ISM, readings below 48 are consistent with an impending recession. And there the news is not good. Not only has the index been below 50 for the past 7 months, it has been below 48 for the past 6.
This month, the overall index fell to 45.7, a new low since the pandemic. Perhaps worse, the new orders subindex, which is the most accurate leading component and has been contracting since last summer, fell to 42.6, just 0.1 above its post-pandemic low:
It’s a recession, plain and simple. The only caveat in this case is that the narrow but very important manufacturing sector not involved in this decline is motor vehicle manufacturing, where supply shortages are still being resolved.
Now let’s turn to construction costs, which told the complete opposite story. Total construction spending rose 1.2% in April, with the leading component of housing spending rising 1.3%:
Over the past few years, I have adjusted the nominal PPI numbers for building materials. This has been declining but rising throughout this year and rose another 0.5% in April. So adjusted, total real construction spending increased, but housing spending fell slightly:
It’s been a very mixed start to the month, with a sharp decline in manufacturing but another sign of a bottom in housing construction.