Construction Spending Rises on Commerical Boom, ISM Manufacturing Slows Slightly, Prices Paid Falls Again, Pending Home Sales Rebound

- Construction Spending for August rose .3% versus estimates of a .3% decline and a 1.0% decline in July.
- ISM Manufacturing for September fell to 52.9 versus estimates of 53.5 and a reading of 54.5 in August.
- ISM Prices Paid for September fell to 61.0 versus estimates of 67.5 and a reading of 73.0 in August.
- Pending Home Sales for August rose 4.3% versus estimates of unch. and a 7.0% decline in July.

BOTTOM LINE: Construction spending in the US unexpectedly rose in August as companies increased investment in office buildings, factories and hospitals, Bloomberg said. Booming corporate investment in new facilities is helping to offset slower residential construction. Private non-residential construction rose 3.4% and has soared 24% from year-ago levels. Private residential construction spending fell 1.5% versus a 2.1% decline the prior month. I expect construction spending to continue to slow, but remain relatively healthy over the intermediate-term.

Manufacturing in the US last month expanded at a slower pace than economists’ expected last month, Bloomberg reported. The new orders component of the index held at 54.2, while the employment component of the index fell to 49.4 from 54 the prior month. The prices paid component of the index fell to 61 and is now 31% below April 2004 highs. Business investment will grow 7.8% this year, up from 6.8% growth in 2005, according to a survey of economists by Blue Chip Economic Indicators. I expect manufacturing to continue to slow to more average levels over the intermediate-term as auto production cutbacks offset inventory rebuilding.

Contracts to buy previously owned homes in the US unexpectedly rose in August, suggesting the downturn in housing is losing steam, Bloomberg reported. Pending re-sales rose 9.2% in the West, 4% in the South, 3.6% in the Northeast and were unchanged in the Midwest. The average 30-year mortgage rate was 6.31% last week, down 49 basis points from July highs. As well, low unemployment, a rising stock market and income growth are helping to cushion the slowdown in housing. I continue to believe that housing will stabilize at relatively high levels over the coming months after modest price declines.