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NAM: Monday Economic Report

Back on the home front, the U.S. manufacturing sector continues to improve, though at a modest pace. The Markit Flash U.S. Manufacturing Purchasing Managers’ Index (PMI) remains above the 50.0 neutral mark, but slipped a little from 53.3 in July to 52.5 in August. Weaker growth in both output and new orders were the key factors that pulled down the latest survey results. Production volumes also expanded at a slower pace. At the same time, increasing input prices for metals, oil, and electrical components pushed production costs higher.

Data from the Kansas City Federal Reserve Bank were encouraging, with manufacturing activity expanding at its fastest pace since March 2017. New orders, production, and shipments accelerated strongly, even as hiring and exports continued to reflect lingering challenges. In the report, respondents remained cautiously optimistic in their outlook. They were concerned with increasing input costs, as well as the cost for health care insurance.

In contrast to those releases, new durable goods orders decreased 6.8 percent in July, largely from weaker transportation equipment orders, in particular nondefense aircraft. Excluding transportation, new durable goods orders increased 0.5 percent in July and were up 5.6 percent over the past 12 months. Core capital goods orders (nondefense and excluding aircraft), a good proxy for business spending, rose 0.4 percent in July and were up 3.5 percent on an annual basis. This indicates a surge in business spending early in the third quarter. Core capital goods shipments, used to calculate equipment spending in the Gross Domestic Product (GDP) measurement, increased 1.0 percent in July and were up 5.7 percent over the past 12 months.

Meanwhile, housing data was off. Existing home sales slipped 1.3 percent to 5.44 million units at an annual rate in July, but up 2.1 percent over the past 12 months. The softness in sales was largely attributed to low inventory and rising home prices affecting affordability. New home sales also declined, down 9.4 percent in July to 571,000 units and 8.9 percent lower year-over-year, down from 627,000 units in July 2016. Inventory of new homes increased slightly and represents 5.8 months of supply at the current sales rate.

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