US manufacturing shows signs of life - Home sales rise while construction slows

US manufacturing shows signs of life - Home sales rise while construction slows
By Alan Rappeport in New York
Copyright The Financial Times Limited 2009
Published: July 1 2009 16:47 | Last updated: July 1 2009 16:47
http://www.ft.com/cms/s/0/1e340b20-6655-11de-a034-00144feabdc0.html


The contraction in US manufacturing slowed last month with several industries showing growth in a sign that the worst of the recession may be abating.

However a raft of mixed data on Wednesday provided a reminder that the US is likely facing a slog of a recovery rather than a quick turnaround. While pending home sales were hopeful, construction spending continued to slide last month and the latest private sector payrolls report pointed to another jump in the unemployment rate.

The ISM manufacturing survey for June ticked up to 44.8 from 42.8 in May, offering its best performance since before the collapse of Lehman Brothers last September. The improvement, which was its sixth in a row, was fuelled by a strong boost in production, which expanded for the first time in nine months, jumping by 6.5 percentage points.

“A slow recovery for manufacturing is forming, based on the current trends,” said Norbert J. Ore, ISM chairman. “Indications are that the de-stocking cycle is at or near the end in most industries.”

Last month, seven of the 18 industries surveyed reported growth, with petroleum and coal products, printing, wood products and non-metals showing the most strength.

New orders fell back again in June after climbing in May, as companies continued to hold back for signs of growing demand. Businesses are also keeping up their efforts to clear stocks, with inventories showing an even sharper contraction and falling to a 27-year low. Only textile mills saw their stocks swell last month.

“The big question, of course, is whether this is a precursor to a sustained economic recovery starting in the second half, or simply a shift from panic and paralysis to something less scary but still recessionary,” said Joshua Shapiro, chief US economist at MFR.

Analysts are waiting to see if the signs of life in manufacturing are sustainable, which ultimately depends on a return of consumer demand. High levels of joblessness continue to pressure consumers and that shows few signs of easing. Wednesday’s ADP employer services survey revealed that 473,000 private sector jobs were shed last month, setting the stage for Thursday’s non-farm payrolls report to show that the unemployment rate climbed to 9.6 per cent.

Other indicators on Wednesday show that the shape of the recovery remains muddled. The National Association of Realtors said that pending home sales rose for the fourth month running in May and are up by 6.7 per cent compared with a year ago. Falling prices and government tax incentives have made homes more affordable than at any time since 1970, according to NAR.

But increasing home sales are not easing the pain felt by builders. The commerce department said construction spending fell in June for the fourth month out of the last five, with residential spending down by 33.3 per cent year-on-year and spending on commercial projects off by 28.7 per cent, signalling that the property overhang remains out of balance with demand.

A bright note, however, was that manufacturers are preparing for future production after a year of falling output. In May spending on factory construction climbed by 55.5 per cent from a year ago.