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Macro Pulse highlights recent activity and events expected to affect the U.S. economy over the next 24 months. While the review is of the entire U.S. economy its particular focus is on developments affecting the Forest Products industry. Everyone with a stake in any level of the sector can benefit from
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Tuesday, September 6, 2016

August 2016 ISM and Markit Reports

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The Institute for Supply Management’s (ISM) monthly opinion survey showed that U.S. manufacturing contracted in August. The PMI registered 49.4%, a decrease of 3.2 percentage points from the July reading of 52.6%. (50% is the breakpoint between contraction and expansion.) ISM’s manufacturing survey represents under 10% of U.S. employment and about 20% of the overall economy. All sub-index values were either unchanged or lower in August than in July. 
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The pace of growth in the non-manufacturing sector -- which accounts for 80% of the economy and 90% of employment -- abruptly decelerated in August. The NMI registered 51.4%, a drop of 4.1 percentage points from the July reading. The only sub-indexes with higher August values were slow supplier deliveries and inventory sentiment. 
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Wood Products was unchanged while Paper Products contracted. Two of the three service sectors we track (Real Estate and Construction) expanded. “Overall, the oil and gas industry remain in [a] ‘wait and watch’ mode. The price of oil has impacted investment considerably,” wrote one Construction respondent.
Relevant commodities --
* Priced higher: Lumber and construction labor.
* Priced lower: Gasoline and corrugate.
* Prices mixed: Diesel.
* In short supply: Construction labor.

ISM’s and Markit’s surveys were consistent with each other in August insofar as both of Markit’s surveys showed deceleration.
Commenting on the data, Markit’s chief economist Chris Williamson said:
Manufacturing -- “Despite the PMI falling in August, the survey suggests the third quarter is shaping up to be the best quarter so far this year for manufacturing, with output growth picking up compared to the first half of the year on the back of improved export sales.
“The overall rate of expansion remains only modest, however, and the upturn fragile. Weak domestic demand remains a drag on order books. Concerns about the outlook have also resulted in a marked reduction in the rate of job creation.
“There’s anecdotal evidence to suggest that this at least in part reflects a slowing in the economy in the lead up to the presidential election, meaning there’s scope for growth to revive later in the year. In the meantime, the overall sluggish pace of expansion signaled by the survey, and the slacking of inflationary pressures, provides support to those arguing that interest rates should remain on hold.”

Services -- “The weak PMI readings send a downbeat note on economic growth in the third quarter. Taken together, the manufacturing and services PMIs are pointing to an annualized GDP growth rate of a mere 1%, similar to the subdued pace signaled by the surveys throughout the year to date, suggesting that those looking for a strengthening in the rate of economic growth will be disappointed once again.
“With non-farm payroll growth also showing signs of waning in line with the surveys’ employment indicators in August and inflationary pressures remaining subdued, the data flow is leaning towards the Fed staying in “wait and see” mode at its September meeting.
“The slow pace of growth and weak hiring was in turn often linked by companies to growing uncertainty about the economic outlook as the presidential election approaches, suggesting growth could pick up again later in the year.”
The foregoing comments represent the general economic views and analysis of Delphi Advisors, and are provided solely for the purpose of information, instruction and discourse. They do not constitute a solicitation or recommendation regarding any investment.

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