September 2016 Economic Indicators

Melanie Garza - Director of Strategy & Growth

Manufacturing Sector Falls

U.S. manufacturing contracted last month for the first time since February, reported the Institute for Supply Management.  The index hit 49.4 in August, down from 52.6 in July.  Economists expected the index to hit 52.2 last month. A reading above 50 indicates expansion in the manufacturing sector while a reading below 50 indicates contraction.

The report proposes that manufacturers continue to struggle as businesses spend less on machinery, computers and other large equipment. Auto sales have also leveled off this year after reaching a record level in 2015.

The employment index dropped to 48.35%, its second straight month of decline. The New Orders Index registered 49.1%, a decrease of 7.8 points from the July reading of 56.9%. The Production Index registered 49.6, which is 5.8 points lower than the July.

Only six of the 18 industries reported an increase in new orders in August (down from 12 in July).

The industries reporting growth were: Printing & Related Support Activities; Nonmetallic Mineral Products; Computer & Electronic Products; Miscellaneous Manufacturing; Food, Beverage & Tobacco Products; and Chemical Products.

The 11 industries reporting contraction in August — listed in order — are: Electrical Equipment, Appliances & Components; Apparel, Leather & Allied Products; Plastics & Rubber Products; Furniture & Related Products; Transportation Equipment; Machinery; Textile Mills; Paper Products; Petroleum & Coal Products; Primary Metals; and Fabricated Metal Products.


Consumer Sentiment Fairs Well

The University of Michigan Final Consumer Sentiment for August came in at 89.8, a 0.2 point decrease from the 90 July Final reading.

Economists believe consumer sentiment is steady and respectable. Less favorable personal financial prospects were largely offset by a slight improvement in the outlook for the overall economy. Most of the weakness in personal finances was among younger households who cited higher expenses than anticipated as well as slightly smaller expected income gains. The long term inflation expectations fell to the lowest level ever recorded, with near term inflation expectations anchored to that same low level. Just as low inflation has provided strong support for real income gains, low interest rates have increasingly become the sole driver of large discretionary expenditures.

Overall, the data remains consistent with real personal consumption improving by 2.6% through mid-2017, with large purchases sensitive to future interest rate trends.


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