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ISM Up, Construction Spending Neutral, & Pending Home Sales Rise

September 1st, 2009 Michael McDonough

The ISM rose for the 8th consecutive month finishing August at 52.9, this was the index’s first reading above the break even point of 50 since January 2008. Improvements in manufacturing will likely have positive implications for 3Q09 Real GDP growth. The new orders index increased to 64.9 from 55.3 a month prior. This index indicates that increments in the ISM should continue. The prices paid index rose to 65.0 from 55.0 a month prior. Despite the increment in the ISM the employment index remains below 50, moving to 46.4 from 45.6 a month prior.  Norbert J. Ore, CPSM, C.P.M., chair of the ISM said in the report, “The year-and-a-half decline in manufacturing output has come to an end, as 11 of 18 manufacturing industries are reporting growth when comparing August to July. While this is certainly a positive occurrence, we have to keep in mind that it is the beginning of a new cycle and that all industries are not yet participating in the growth. The August index of 52.9 percent is the highest since June 2007. The 4 percentage point increase was driven by significant strength in the New Orders Index, which is up 9.6 points to 64.9 percent, the highest since December 2004. The growth appears sustainable in the short term, as inventories have been reduced for 40 consecutive months and supply chains will have to re-stock to meet this new demand.”

Construction spending fell by 0.2% in August. An increment in residential; construction spending was offset by a declines in non-residential and public spending.

Pending home sales rose 3.2% in June, realizing the index’s sixth consecutive monthly gain. This is continued evidence the housing sector has bottomed, and is in the midst of a gradual recovery. But, rising foreclosures and delinquencies on all types of mortgages stemming from weakness in the labor market will prevent any recovery in housing from reaching its full potential.  Lawrence Yun, NAR chief economist, said, “The recovery is broad-based across many parts of the country. Housing affordability has been at record highs this year with the added stimulus of a first-time buyer tax credit.”

Ford will be the first auto company reporting sales later today at 12:00PM, be sure to keep an eye out for this data.

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