Digging Into the Latest Manufacturing PMI and Construction Spending Reports
Here are the key takeaways and implications.
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Following up on today’s Daily Rundown video, let's discuss what we found in S&P Global’s final December Manufacturing PMI and the November Construction Spending report.
The "cut to the quick: assessment is the manufacturing economy cooled further in December, but inflation in the manufacturing sector perked up during the month. With the manufacturing sector contributing roughly 10% to the overall economy, we continue to think next week’s December Services PMI reports will be far more telling about the pace of the economy, inflation, and employment. Meantime, while a bit in the rearview mirror, the November Construction Spending report offers solid support for several of our holdings.
S&P Global’s December Manufacturing PMI Report
While the final December Manufacturing PMI print from S&P Global of 49.4 was better than the flash reading of 48.3, the final figure was still lower compared to November’s 49.7 figure. The December reading also marked the sixth consecutive month of declining activity in the manufacturing sector. New orders booked during December also softened, with survey respondents citing uncertainty ahead of the incoming Trump administration. This suggests the odds of an upturn in the January data is low, but we’ll continue to cross-check other incoming data.
On the inflation front, S&P’s findings tell us it sure looks sticky out there in the manufacturing sector:
“The rate of input cost inflation accelerated sharply at the end of the year, with the latest increase the fastest since August… Higher supplier charges and rising costs for raw materials were reported by panelists. In turn, firms increased their output prices, with the pace of inflation quickening to a three-month high. Charges have risen continuously since June 2020.”
More comments like that will keep the Fed on a measured pace when it comes to rate cuts this year, but we have a long way to go on that front. We continue to think the coming data over the next several months will determine the 2025 rate cut tale to a greater degree.
The uptick in inflation will give us another reason to examine the December FAO Food Price Index when it is published tomorrow, January 3.
November Construction Spending Report
Turning to the November Construction Spending report, overall spending came in at a seasonally adjusted annual rate of $2.15 trillion for the month, flat with October and up 3.0% on a year-over-year basis. Digging into the report, residential construction rose 3.2% year over year, which matches the privately owned housing units started data found in the November Housing Starts report. That activity supports our position in Builders FirstSource BLDR, but inflation data, especially for the service sector, will be as important for that holding.
Non-residential climbed 2.8% compared to November 2023. Public non-residential construction rose at a quicker pace, up 4.4% year over year in November, and for the first two months of the December 2023 quarter, it rose 5% year-over-year. We see that supporting our positions in United Rentals URI, Vulcan Materials VMC, and Waste Management WM rather nicely.
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At the time of publication, TheStreet Pro Portfolio was long BLDR, URI, VMC and WM.
