Tags: Coronavirus | manufacturing | construction | economy | virus

August Could Be Ugly Month for Economy Unless DC Acts Soon

August Could Be Ugly Month for Economy Unless DC Acts Soon
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By Monday, 03 August 2020 05:21 PM Current | Bio | Archive

INDICATOR: July Manufacturing Activity and June Construction Spending

KEY DATA: ISM (Manufacturing): +1.6 points; Orders: +5.1 points; Production: +4.8 points/ Construction: -0.7%; Private Commercial: -1.3%; Private Residential: -1.5%

IN A NUTSHELL: “Manufacturing is bouncing back but construction activity remains hit or miss.”

WHAT IT MEANS: Manufacturing continues to improve, which is good news for the economy. The Institute for Supply Management’s Manufacturing index rose solidly again in July and the details were mostly very good. There were strong gains in orders, and despite a jump in production, backlogs have started to build. That holds out hope that activity will continue to improve in the next couple of months. Firms are also beginning to regain pricing power. About the only negative in the report was the employment index. While it was up, the level remains in negative territory, meaning that jobs are still being cut, though at a slightly slower pace. There are few signs that firms are adding lots of new workers and that is a reason to believe the next set of job reports could be disappointing.

Construction spending fell in June, which was not a surprise. The sharp drop in private residential activity was greater than expected and with the general economy only starting to reopen, nonresidential commercial construction also fell sharply. Until it is clear where we are going, which could be months given the surge in the virus, don’t expect construction to pick up significantly. Governments just don’t have the money to spend and businesses are hardly going to expand greatly if they don’t know whether demand will be there to pay off the costs.

IMPLICATIONS: Given where we ended the second quarter, it is clear that third quarter growth will be huge. Maybe nowhere near the second quarter decline, but impressive nonetheless. How impressive, remains a question. The next economic bailout bill is still to be passed and there are still people waiting for the checks they were supposed to get in the spring and workers who just cannot get on the unemployment rolls despite being unemployed for weeks. The cut in the unemployment payments created by the political gridlock and miscalculations could show up in spending fairly quickly, but the rebound once the checks go out will likely take a lot longer. So, August could be an ugly month unless something happens in Washington soon – like two weeks ago. Despite the fact that the economy cannot stand on its own, investors will probably continue assuming that Uncle Sam the Candy Man will continue providing everything needed. And they could be right, at least until the election is over.

Joel L. Naroff is the president and founder of Naroff Economic Advisors, a strategic economic consulting firm.

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JoelNaroff
August could be an ugly month unless something happens in Washington soon – like two weeks ago.
manufacturing, construction, economy, virus
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2020-21-03
Monday, 03 August 2020 05:21 PM
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