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December ISM MF Index, Mortgage Apps, Nov. Construction Spending

January 3, 2018
By Robert A. Dye, Ph.D., Daniel Sanabria

Manufacturing Activity Surged at Year-End 2017, Momentum Will Extend into 2018

  • The ISM Manufacturing Index for December increased to a strong 59.7 percent.
  • Mortgage Applications were soft in December.
  • November Construction Spending gained 0.8 percent as single-family housing projects increased.

 

Adding to the mix of recent positive economic and financial market data, the ISM Manufacturing Index for December increased to a strong 59.7 percent. With August through November readings all between 58 and 61, we can say that year-end 2017 was a very positive time for U.S. manufacturing. In December, eight out of 10 ISM MF Index components were in positive territory above 50. The new orders sub-index was very strong at 69.4. Production was not far behind at 65.8. Only the two inventory sub-indexes were below 50, indicating shrinking inventories for manufacturers and their customers. This is not necessarily a negative economic signal. In this case, shrinking inventories is likely a positive signal for future new orders. The employment sub-index was also positive at 57.0 in December, supportive of ongoing payroll employment gains. We will see the payroll employment data for December this Friday morning. Anecdotal comments from manufacturers were generally positive. Some suggest that 2018 will start with another good quarter. Sixteen out of 18 reporting industries said that they grew in December. Only wood products and textile mills reported contraction at the end of 2017.

Mortgage applications for the last week of December gained 0.7 percent, but were soft for the prior three weeks. December looks set to show a dip in home sales, after both new and existing home sales increased noticeably in November. Purchase apps eased by 0.1 percent at the end of December, while refi apps gained 1.4 percent. According to the Mortgage Bankers Association, the rate for a 30-year fixed rate mortgage remained at 4.25 percent. We expect to see gradual upward pressure on mortgage interest rates through 2018, consistent with ongoing monetary tightening by the Federal Reserve.

The value of construction put in place in November increased by a healthy 0.8 percent. All three major categories were positive for the month. Private residential construction spending increased by 1.0 percent, as single-family projects ramped up. Private nonresidential construction spending gained 0.9 percent in November, paced by a 5.5 percent increase in office construction. Public construction spending gained 0.2 percent for the month.

Market Reaction: U.S. equity markets opened with gains. The yield on 10-Year Treasury bonds is down to 2.44 percent. NYMEX crude oil is up to $61.41/barrel. Natural gas futures are down to $2.97/mmbtu.

For a PDF version of this report click here: ISM-MF_01032018.

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