Tuesday, July 3, 2018
Traders have put aside their overt concerns over a progressing global trade war for now, instead buying back near-term lows mid-day yesterday and into this morning’s pre-market. The Dow, in particular, is up triple digits this morning, following its close in the green Monday. Good feelings about the pending Independence Day tomorrow may have something to do with it, but is there anything besides seasonal levity (and low trading volume) that might answer why?
Sure there is: yesterday after the opening bell, we saw three consecutive positive reads for the Manufacturing and Construction sectors, two from June and one from May. Manufacturing PMI for last month reached a level of 55.4, higher than the 54.6 expected. Though these results show slowing growth in both factory activity and new orders, business confidence remains strong, based on data from Markit Economics.
June ISM Manufacturing also outperformed expectations, posting a strong 60.2% figure that was above the 58.3% consensus estimate and 58.7% headline posted for May. This marks the most robust expansion for manufacturing in the past four months, with larger increases in production, inventories and new exports. Textiles and wood products led the industry segments, with no industries reporting decreases from May to June.
Construction Spending for May posted a gain of 0.4%, and while this is well short of the previous month’s 0.9% gain, it performed better than the break-even expected by analysts. Spending for this sector is now up 4.5% year over year, to a seasonally adjusted, annualized $1.31 billion. Growth year to date is outpacing 2017’s same time period by 4.3%, with single-family home construction carrying the heaviest load, up 8.2% year over year and +0.6% month over month.
All these numbers are consistent with the robust economy we’ve been experiencing for most of the past couple years, especially in Manufacturing and Construction, which were dormant sectors in the initial and mid-stages of the long-term economic recovery. These sectors have brought production and employment to historical levels many economists doubted were even possible just a few short years ago.
Keep in mind that even though this is a holiday week, it is also the week that brings a new batch of non-farm payroll results, including a fresh Unemployment Rate (both headline and “real” unemployment U-6, which are at generational lows) and average wage growth. Ahead of earnings season — which has already begun to trickle in with fiscal May closing quarters for a handful of S&P 500 members, but which gets under way strongly in a couple weeks — there is no traditional stronger driver of stock markets than the BLS employment report coming out on Friday.
Mark Vickery
Senior Editor
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