Factory Sector Shifted to Lower Gear Globally
The ISM manufacturing survey results of May show a decelerating trend in factory activity. The composite index declined to 6.9 points to 53.5 in May, which marks the third consecutive monthly drop. The sharp declines of indexes tracking new orders (-10.7 to 51.0) and production (- 9.8 to 54.0) are worrisome. Index readings greater than 50 denote an expansion in factory activity, while readings below 50 signify a contraction. The drop of the April-May average of index measuring exports suggests a smaller contribution from exports to GDP in the second quarter, barring a large increase in June. The price index fell 9.0 points to 76.5 in May, which is the first decline since December. The employment index (61.0 vs. 64.5 in April) is the lowest since January.
A slowdown in the pace of factory activity in China (52.0 vs. 52.9 in April), Euro-zone (54.6 vs. 58.0 in April), India, South Korea, and Taiwan in May bodes poorly for world economic growth in the second quarter.
Construction Spending Remains Lackluster
Total construction outlays rose 0.4% in April, reflecting an increase in home improvement outlays (+7.6%) and expenditures of non-residential outlays (+0.5%). Outlays pertaining to new housing (-0.9%) fell in April. Residential construction data in April sets the stage for a small increase in residential investment expenditures in the second quarter, if new home construction numbers do not post a large drop in the May-June period.
Auto Sales Fell in May, Consumer Spending on Slow Track in 2011:Q2
The decline in auto sales during May to an annual rate of 11.79 million units from 13.17 million units during April suggests a likely decline in the second average of auto sales if June sales data are not exceptionally strong. The most important implication of this eventuality is a noticeably slow pace of consumer spending in the second quarter such that it is below the 2.2% annualized gain seen in the first quarter of 2011.
The opinions expressed herein are those of the author and do not necessarily represent the views of The Northern Trust Company. The Northern Trust Company does not warrant the accuracy or completeness of information contained herein, such information is subject to change and is not intended to influence your investment decisions.
Source: Northern Trust
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