U.S. Income, Spending & Prices Firm in March

The April Composite Index of activity in the factory sector reported by the Institute of Supply Management (ISM) surged to 57.3, well ahead of Consensus expectations for an unchanged reading at 55.0. The figure was the highest since last November and represented improvement from the 1Q average of 55.6.

During the last twenty years there has been a 68% correlation between the level of the Composite Index and the three month growth in factory sector industrial production.

A higher production index at 60.4 versus 57.2 averaged during 1Q led last month's rise. Moreover, the employment index rebounded to 55.8 versus 52.9 during 1Q. During the last twenty years there has been a 67% correlation between the level of the ISM employment Index and the three month growth in factory sector employment. The inventory index also rose to its highest level (51.3) in a year while the supplier deliveries index increased to its highest (57.7) since October.

To the downside was the new orders index which fell to the lowest level (57.6) since August. New export orders were notably weak as the index dropped to the lowest level (53.4) since last June.

The price index showed further strength with a five point increase to its highest level since November. During the last twenty years there has been a 91% correlation between the price index and the three month change in the PPI for intermediate goods less food & energy.

Are We Engineering Ourselves Out of Manufacturing Jobs? from the Federal Reserve Bank of Cleveland can be found here.

The March value of construction put in place increased another 0.9% on top of the 1.0% rise during February and for the second month, the gain was double the Consensus expectation for a 0.4% increase.

Residential building jumped 1.6% after an unrevised 1.3% February surge. Strength was most pronounced in the value of improvements which jumped 4.5% (-7.0% y/y) while new single family building rose 0.5% (13.5% y/y).

Nonresidential building fell 0.1%, the first decline since last October, and it was led by a 1.7% (+11.2% y/y) drop in office construction. Commercial building rose 0.6% (8.7% y/y) after a huge 3.3% February drop.

Public construction spending rose 0.2% for the second month though construction activity on highways & streets, nearly one third of the value of public construction spending, slipped 0.4% (4.9% y/y).

These more detailed categories represent the Census Bureau’s reclassification of construction activity into end-use groups. Finer detail is available for many of the categories; for instance, commercial construction is shown for Automotive sales and parking facilities, drugstores, building supply stores, and both commercial warehouses and mini-storage facilities. Note that start dates vary for some seasonally adjusted line items in 2000 and 2002 and that constant-dollar data are no longer computed.

China's balance of payment data for 2005 were released today and, to no one's surprise, the current account surplus was a record--$160.8 billion, $67.2 billion in the first half of the year and $93.5 in the second half. For the year as a whole, the surplus was $92.2 billion above last year's surplus of $68.7 billion. (Data for China's balance of payments are reported only on a semi annual basis.)

With its large current account surplus and a net inflow of capital, China has been piling up international reserves as can be seen in the first chart that compares the current account surplus with the increase in reserves. China is now the world's largest holder of international reserves having surpassed Japan in November 2004 as seen in the second chart.As of December, 2005, China's holdings of foreign reserves less gold amounted to $822 billion and the latest data for February, 2006, show a further rise to $856 billion.

Data for China's trade through March 2006 was also released today. The widening gap between exports to and imports from the United States shows no sign of diminishing as can be seen in the third chart.

Data on China's trade and balance of payments may be found in the Haver CHINA and EMERGEPR data bases. The data on the balance of payments are identical in both data bases, but the data on trade are more detailed in the CHINA data base.