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NAM: Monday Economic Report

Associated Industries of Missouri is the sole official designated partner of the National Association of Manufacturers in Missouri.

The two regional manufacturing surveys out last week moved in different directions. On the positive side,manufacturing activity in the Philadelphia Federal Reserve’s district continued to grow in October, expanding for the fourth time in the past five months. There was notable progress for both new orders and shipments, even as the labor market data continued to lag behind. In contrast, the Empire State Manufacturing Survey reported that activity in the sector contracted for the third consecutive month in October. Most of the key variables remained negative in the latest report, albeit with some easing in the rate of decline. With that said, both surveys cited cautious optimism for the next six months. In the New York Federal Reserve Bank’s survey, for instance, more than half of the respondents see new orders rising in the months ahead, which is encouraging.

Beyond manufacturing, there was also mixed news on residential construction. New housing startsdeclined sharply in September, down 9.0 percent, largely on a huge drop in multifamily activity. New residential construction fell from an annualized 1,150,000 units in August to 1,047,000 in September, an 18-month low. The bulk of that decline came from the multifamily segment, down from 426,000 to 264,000, its slowest pace since June 2013. Multifamily activity is often quite volatile from month to month, making the latest drop likely temporary. Indeed, new single-family housing starts were higher, up from 724,000 to 783,000, the fastest rate since February. On a year-over-year basis, single-family starts have risen 5.4 percent.

On the other hand, housing permits data provide some reassurance that the residential market should improve moving forward, given that they serve as a proxy of future activity. Permitting for new residential units increased from 1,152,000 to 1,225,000, marking its highest level since November 2015 and the first time so far in 2016 that permits have exceeded 1.2 million units at the annual rate. At the same time, homebuilders report increased confidence about single-family home sales over the next six months, with the index for expected sales rising to its highest level in 12 months. In addition, the headline Housing Market Index continues to reflect increased optimism among homebuilders since the summer. At the same time, existing home sales rebounded in September, led by strength in the single-family segment.

This week, we will get even more information on the current health of the manufacturing sector, and hopefully, those reports will show improved demand and production from earlier signs of softness. This includes durable goods orders and shipments, regional surveys from the Kansas City and Richmond Federal Reserve Banks and flash purchasing managers’ indexes from Markit for the United States and the Eurozone. Of course, the largest headlines will come at the end of the week, with the first estimate of real GDP growth for the third quarter. After expanding just 1.1 percent in the first half of 2016, look for the U.S. economy to grow by roughly 2.5 percent at the annual rate from July through September. Still, for the year as a whole, real GDP should increase around 1.6 percent, easing from the 2.2 percent annual average seen since the Great Recession. Other data releases this week include the latest figures on consumer confidence, employment costs and new home sales.

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