ISM Down – Construction Up (DIA, XLI, XLB, XHB, VNQ)
ISM Report on Business disappoints while Construction Spending report beats expectations
The first trading day of the new month started out with two important economic reports: the Institute for Supply Management’s April Report on Business for June and the Commerce Department’s Construction Spending report for May.
The Institute for Supply Management’s June 2012 Manufacturing Report on Business indicated that the June PMI declined by 3.8 percentage points to 49.7 from May’s reading of 53.5 percent. Economists had been expecting a less-significant decline to only 52.0.
From the report:
The report was issued today by Bradley J. Holcomb, CPSM, CPSD, chair of the Institute for Supply Management™ Manufacturing Business Survey Committee. ”The PMI registered 49.7 percent, a decrease of 3.8 percentage points from May’s reading of 53.5 percent, indicating contraction in the manufacturing sector for the first time since July 2009, when the PMI registered 49.2 percent. The New Orders Index dropped 12.3 percentage points in June, registering 47.8 percent and indicating contraction in new orders for the first time since April 2009, when the New Orders Index registered 46.8 percent. The Production Index registered 51 percent, and the Employment Index registered 56.6 percent. The Prices Index for raw materials decreased significantly for the second consecutive month, registering 37 percent, which is 10.5 percentage points lower than the 47.5 percent reported in May. Comments from the panel range from continued optimism to concern that demand may be softening due to uncertainties in the economies in Europe and China.”
The Construction Spending report for May released by the Commerce Department’s Census Bureau revealed that construction spending during May of 2012 increased by 0.9 percent from April’s revised estimate. Economists had been expecting an increase of only 0.2 percent.
From the report:
The U.S. Census Bureau of the Department of Commerce announced today that construction spending during May 2012 was estimated at a seasonally adjusted annual rate of $830.0 billion, 0.9 percent (+1.5%)* above the revised April estimate of $822.5 billion. The May figure is 7.0 percent (+2.0%) above the May 2011 estimate of $775.8 billion.
During the first 5 months of this year, construction spending amounted to $310.5 billion, 9.4 percent (+1.6%) above the $283.8 billion for the same period in 2011.
PRIVATE CONSTRUCTION
Spending on private construction was at a seasonally adjusted annual rate of $560.4 billion, 1.6 percent (+1.6%)* above the revised April estimate of $551.8 billion. Residential construction was at a seasonally adjusted annual rate of $261.3 billion in May, 3.0 percent (+1.3%) above the revised April estimate of $253.8 billion. Nonresidential construction was at a seasonally adjusted annual rate of $299.1 billion in May, 0.4 percent +1.6%)* above the revised April estimate of $298.0 billion.
PUBLIC CONSTRUCTION
In May, the estimated seasonally adjusted annual rate of public construction spending was $269.6 billion, 0.4 percent (+2.1%)* below the revised April estimate of $270.7 billion. Educational construction was at a seasonally adjusted annual rate of $65.0 billion, 3.0 percent (+3.8%)* below the revised April estimate of $67.0 billion. Highway construction was at a seasonally adjusted annual rate of $78.0 billion, 0.5 percent (+6.3%)* below the revised April estimate of $78.4 billion.
The major ETFs expected to respond to the ISM’s June 2012 Report on Business and the Commerce Department’s Construction Spending report for May are:
SPDR Dow Jones Industrial Average ETF (NYSEARCA:DIA) -0.30%
Industrial Select Sector SPDR Fund ETF (NYSEARCA:XLI) -1.15%
Materials Select Sector SPDR Fund ETF (NYSEARCA:XLB) -0.85%
SPDR S&P Homebuilders ETF (NYSEARCA:XHB) -0.09%
Vanguard REIT Index ETF (NYSEARCA:VNQ) +0.57%
Bottom line: The performance of the manufacturing sector demonstrates contraction for the first time since July of 2009, raising the specter of recession, while construction spending for the first five months of 2012 outpaced the same period from 2011 by 9.4 percent.
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