September 2, 2014

U.S. Manufacturing Grows at Fastest Pace in Three Years

• ISM Manufacturing PMI ▲ to 59.0 (forecast 56.8) from 57.1
• Led by a surge in orders for plastics and metals
• American factories are benefiting from a rebound in auto sales and stronger business spending on new plants and equipment
• Manufacturing was less positive in overseas
• U.K. factory growth slowed more than forecast last month, and Italian manufacturing ▼ as Europe suffered the fallout from weakening demand and geopolitical risks rose
• Spending on construction projects ▲1.8% in July, the most since May 2012
• Led in party by increased work on factories and power facilities
• Gains in business investment may help make up for some of the shortfall among households

Thought

While consumer confidence is increasing, ▲ PMI gives a positive view on economy. The question is whether job market continuously improves to meet the consumer's needs. In fact, payroll in July decreased, which gives a concern that consumer spending might be recessed.

Indicators about unemployment rate and payroll will be released this Friday, Sep. 5. Those indicators will show how Fed. will react on easing its monetary policy.

U.S. Construction Spending Hits Highest Level in 5-1/2 Years

• As private construction ▲ and state and local government outlays surged
• Private construction, the largest portion of construction spending, ▲1.4% to its highest level since November 2008
• The housing market recovery is back on track after stagnating from the second half of 2013 in the wake of a spike in mortgage rates and higher home prices amid stock shortage

Home Purchase Failures Rising in U.K. With Banking Limits

• In August, failed deals ▲ to 26.4% from 24.4% YoY
• Driven by potential buyers getting cold feet and walking away
• In July, failed purchases were marked by willing buyers who were prevented from closing deals because they couldn’t secure a big enough mortgage
• BOE is introducing a series of measures to limit mortgage lending
• These include limits on how much banks can lend relative to a borrower’s income, and requirements that banks turn down loans to homebuyers who fail a stress test that assumes an immediate 3% increase in the benchmark rate

European Manufacturing Weakens on Heighted Global Risk

• German PMI decreased to 51.4 (forecast 52.0) compared with 52.0 last month
• U.K. factory growth slowed more than forecast last month
• 52.5 (forecast 55.0) compared with 54.8 last month
• The weakness in the euro-region economy is taking its toll on the U.K., where the factor PMI ▼ to the lowest since June 2013
• Italian manufacturing shrank as Europe suffered the fallout from weakening demand
• 49.8 (forecast 50.8) compared with 51.9 last month; first contraction in 14 months
• “The latest escalation of Russia’s aggression, and the likely stepping up of Western sanctions and Russian countersanctions, indicate that the overall weakness could get worse.”

Thought

It is not surprised that PMI in euro area is recessed. Tension in Ukraine is not improving, which significantly impacts on European markets. The only expectation they ally on is QE.