In the wake of severe weather events and extensive regional destruction, it’s important to note how these current events are affecting our economy and key industries. Manufacturing, commerce, and development are all important elements of our communities which feel the impact of current events and their repercussions. In light of this, here is a look into how those industries have been operating with regards to the past month.
Manufacturing Activity Marks a 13-Year High While Construction Spending Rises
Despite recent events surrounding Hurricanes Harvey and Irma, September marks a 13-year high in U.S. factory activity. A degree of employment in factories also hit its highest level since 2011. Recent data showed that construction spending was on the rise in August; this trend in manufacturing activity will likely strengthen expectations of increased interest rates heading into December. The Institute for Supply Management’s index of national factory activity hit its highest rating since May 2004 at 60.8, indicating a trend of manufacturing expansion across 12% of the nation’s economy. According to ISM, 17 out of 18 industries stated there was economic expansion.
Concerning Hurricanes Harvey and Irma, the chemical products sector reported a disruption in its supply chains and issues with pricing; similar impacts were found to also affect the food, beverage, and tobacco industries. In all, a third-quarter drop in GDP as high as 0.6% may be tied to the hurricanes, as Harvey undermined consumer spending, the housing industry, and industrial production within Texas. Irma’s impact on Florida’s power grid was similarly detrimental.
Outside of the hurricanes’ region of influence, manufacturing continued strong, with the ISM’s production sub-index rising to 62.2 as of September. The prices paid index hit 71.5, the highest it has been since May 2011, with factories’ raw materials expenses increasing. In spite of this, the gauge of new orders has risen to 64.6. The dollar was seen to rise against the euro, with U.S. Treasuries prices and Wall Street stocks trading higher.
Construction Spending Continues to Rise
The Commerce Department reported that construction spending had hit $1.21 trillion, marking a 0.5% rise. A revision of July’s construction outlays showed a 1.2% drop, greater than the 0.6% decline reported prior. Construction spending, alternatively, increased by 2.5%. According to the government report, the data on construction spending should not have been impacted by Hurricanes Harvey and Irma because responses from those affected areas were not significantly different from the norm.
August also marked the fourth month in a row that spending related to private residential projects had increased at a rate of 0.4%. A similar growth rate of 0.5% was reported on nonresidential structures, interrupting a two-month decline. The Commerce Department reported that 22% of U.S. spending on private nonresidential construction in 2016 could be traced back to Texas and Florida alone. As a result, we could see a fall in spending following the impact of Harvey and Irma. Investment for these projects, notably oil and gas wells, has been in decline as the effect of recovering oil prices has begun to die out. Alternatively, private construction projects saw a 0.4% increase in spending.
A 0.7% gain for outlays on public construction projects was observed in August following a 3.3% decline the previous month. There was also an increase on spending for state and local government construction projects by a factor of 1.1%. These growths may not be repeated in September as a result of the hurricanes; 15% of these forms of spending last year were specifically found in Texas and Florida. Federal government construction spending, on the other hand, reached its lowest level since April 2007, following a 4.7% drop.
The recent events did not heavily affect our entire client base, but it is important to be fully aware of the all the information provided to us concerning areas where we do business. As always, if you have any thoughts or insights regarding these recent events, don’t hesitate to reach out to us! We’d love to speak with you further regarding this topic.