Economic indicators show signs of weakness

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Monday’s economic indicators, offering a glimpse of the manufacturing sector and construction spending, came in weaker than expected, but probably not bad enough for the Federal Reserve to care.

Manufacturing contracted for the fourth consecutive month as the Institute for Supply Management’s Purchasing Managers Index dipped to 48.1 in November from 48.3 in October.

Economists polled by IFR Markets expected a rebound to 49.2.

“Demand contracted, with the new orders Index contracting faster, the customers’ inventories Index remaining at ‘too low’ levels and the backlog of orders Index contracting for the seventh straight month (and at a faster rate),” according to Timothy R. Fiore, chair of the ISM manufacturing business survey committee.

“The weak global economy and ongoing U.S.-China trade war are increasingly weighing on the U.S. manufacturing sector,” said Scott Anderson, chief economist at Bank of the West.

The Marquette-ISM Report on Manufacturing fell to 42.12 in November from 42.54 in October, also indicating contraction. The Milwaukee index has been negative six of the 11 months this year, including the last five.

The Midwest Economy Index improved to negative 0.41 in October from negative 0.45 in September, suggesting below-average growth in the region, according to the Federal Reserve Bank of Chicago. The relative MEI improved to negative 0.28 in October from negative 0.46 in September.

Consumer spending indicators were flat in the month, while manufacturing, construction and mining, and the service sector all made negative contributions to the index.

Construction spending fell 0.8% in October, the Commerce Department reported Monday, after the September read was revised to show a 0.3% decrease rather than a 0.5% gain.

Economists expected a 0.4% rise.

Private construction fell to the lowest it’s been in three years.

“Declines were broad-based with residential construction falling 0.9% and nonresidential construction decreasing 0.7%,” Anderson said. “Despite the decline, construction spending is still up 1.1% from a year ago on modest gains in both residential (+0.5%) and nonresidential (+1.4%) construction.”

“Between the similarly downbeat November ISM manufacturing and the October construction spending readings, we’ve been treated to fresh reminders that the U.S. economy is not firing on all cylinders here in the final quarter of the year,” said Mark Hamrick, senior economic analyst and Washington bureau chief at Bankrate.com. “Basically put, cue sad trombone sound.”

The manufacturing sector has struggled this year, “reflecting a lackluster global economy and fallout related to trade tensions and tariffs,” he said.

The Federal Reserve Bank of New York forecast GDP growing at an annualized rate of 0.8% this quarter, while the Federal Reserve Bank of Atlanta sees it at 1.7%, Hamrick said. “Neither of those would be seen as robust and both are well short of the Trump administration’s once-highly touted notion of attaining sustained 3% annual growth.”

The trade war with China has impacted “the nation’s farmers and manufacturers,” he said, which “would seem to add pressure on the administration to forge an agreement on U.S.-China trade.”

The Federal Reserve appears to be finished with its midcycle adjustment after three rate cuts. “For that stance to be sustained,” Hamrick said, “the Fed will need to see better data more broadly, including with the upcoming November employment report.”

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