Interest Rate Roundup

Monday, March 02, 2009

Income & spending up ... ISM employment hits lowest level in six decades ... and construction spending tanks

We got a trifecta of economic reports this morning, the details of which can be found below:

* First, January personal income and spending both came in stronger than expected. Personal income gained 0.4% (the forecast called for a 0.2% decline), while personal spending rose 0.6%, against an average forecast of 0.4%. The increase in spending was the first in seven months. Unfortunately, it appears that one-off developments were responsible for some of the strength. Government pay increases and cost-of-living adjustments to various federal payments pushed income higher; core salaries and wages dropped 0.2% -- the third decline in a row.

* Second, construction spending plunged 3.3% in January. That was far worse than the 1.5% decline that was expected, and the December reading was revised down to -2.4% from the originally reported -1.4%. Private residential spending dropped 2.9%, while private nonresidential spending tanked 4.3%. That was the biggest decline in the private nonresi business since January 1994 (-7.1%).

This fits with my thesis, stated many many times in the past year, that commercial construction would follow residential over the cliff. The largest declines were in religious construction (-10.2%), power (-11.6%) and communication (-7.9%).

* Third, the ISM Manufacturing index was essentially unchanged -- coming in at 35.8 in February compared with 35.6 in January. That was marginally better than the 33.8 reading that economists were looking for. The subindex that measures production popped to 36.3 from 32.1, while the subindex covering new orders was flat -- 33.1 vs. 33.2 a month prior. The employment index fell to 26.1 from 29.9. That is the lowest level EVER for this indicator, which dates back to 1948.


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