American manufacturing shrank for the fifth month in a row though the pace moderated, while construction spending jumped and equities, oil and the dollar prospered.
The Institute for Supply Management reported that its widely watched purchasing managers index (PMI) of manufactures rose to 49.5 percent in February from 48.2 in January; 48.5 percent had been forecast by analysts. The December score of 48.0 percent had been the weakest since the U.S. economy exited the recession in June 2009.
This index compares the number of firms that say their business is expanding--reading over 50 percent--to those noting contraction--reading under 50 percent. The gauge has been below 50 since last September, the longest string of negative months since the recession.
A separate manufacturing survey from Markit Economics of London U.K. saw its PMI survey drop to 51.3 in February from 52.4 the previous month.
American manufacturing has been hard hit by the stronger dollar and the economic slowdown that is affecting most of the globe. Both reduce demand for U.S. machinery, computers, medical equipment and the other high value added products that are the bulk of American manufacture exports. At the same time the collapse in the price of crude oil has largely eliminated the need for new equipment in the capital intensive oil exploration industry.
Construction spending of all types climbed 1.5 percent in February, the most in eight months. Non-residential building advanced 2.5 percent while residential constructing fell a negligible amount. Housing starts have fallen for two months and in four of the last six months.
Equities managed to find positive news in both economic reports. The Dow was 294 points higher at 1:15 pm in New York at 16811, its best level since January 7th. Either the economy is weak as portrayed in the ISM report and the Fed will have to forestall hiking rates or it is strengthening, as in the construction spending numbers but not strong enough to bring on a Fed Funds increase.
The dollar was off its best level against the euro trading at 1.0858 at 1:14 pm, having reached 1.0833, its highest in month. At 113.98 the dollar/yen was within points of its intra-day high at 114.08, the greenback’s strongest versus the Japanese currency in two weeks.
Some of the components of the manufacturing survey point to an improved business environment in the months ahead.
Production rose to 52.8 percent in February from January's 50.2 percent, the best measure of factory activity since last August. New orders were unchanged at 51.5 percent up from two sub-50 months at the end of 2015. These had been the first negative months for bookings since the second half of 2012. The employment gauge also rose 2.6 points to 48.5 percent, after being below 50 percent since December and falling to a six year low at 46.0 percent in January.
Export orders continued to decline, slipping to 46.5 percent in February matching the post-recession low. Imports fell to 49.0 percent from 51.0 percent. Prices paid by businesses rose to 38.5 percent from 33.5 in January, another post-recession bottom.
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