US manufacturing slows, housing mixed

There was further evidence of a manufacturing slowdown yesterday from the Institute for Supply Management. Construction spending, however, hit a record high in July, although loans data indicate a possible slowdown there as well.

U.S. Factory Growth Eases
Expansion in the U.S. factory sector slowed in August as higher costs for energy and raw materials squeezed manufacturers, a report showed on Wednesday, but analysts said growth remained relatively robust. The Institute for Supply Management said its index of national manufacturing activity fell to 59.0 in August, the lowest since October 2003, from 62.0 in July. However, the August figure was still not far below January's two-decade high of 63.6, as growth continued for a 15th consecutive month. Economists said the report did not offer any real cause for concern over the state of U.S. manufacturing...

While factories hummed along at a slower pace last month, the housing boom showed no sign of abating... A government report showed construction spending hit a record high in July, rising 0.4 percent...as low mortgage rates and a short supply of homes fueled residential building. All construction spending rose to a seasonally adjusted annual rate of $997.23 billion from an upwardly revised $992.90 billion pace in June. However, data released early in the day showed new applications for U.S. home loans dropped last week for the second week in a row even though 30-year mortgage rates fell slightly. The Mortgage Bankers Association said its seasonally adjusted market index, a measure of mortgage activity, fell 0.6 percent in the week ended Aug. 27 to 642.7 from the previous week's 646.3.

As I have said before, the slowdown in manufacturing should be expected and should not be a cause for concern. As for housing, a slowdown is probably not so much expected but needed. The recent loan data indicates that this may be happening.

The US economy is moderating and a gradual unwinding of the housing bubble is probably what is needed to sustain growth over the longer term.