INDICATOR:  November Manufacturing Activity and October Construction

KEY DATA:   ISM (Manufacturing): -1.5 points; Orders: -4 points; Hiring: +3.7 points/ Construction: +1% 

IN A NUTSHELL:  "The lull in manufacturing continues even as other segments of the economy heat up."

WHAT IT MEANS:  This is the fall of manufacturing's discontent. The Institute for Supply Management reported that in November, the industrial sector declined for the first time in three years. New orders and production turned negative after having also grown about three years. I guess all good things must end, though it is not nice to see this trend turn downward. Both export and import orders continued to slow, though the import cut backs are moderating. On the other hand, the employment index, which did dip into the red earlier in the year and again in October, rebounded. Manufacturing has been restraining the job numbers so maybe we will see an uptick in Friday's employment report.

While manufacturing may be having issues, the construction sector is doing just fine. Construction spending jumped in October and the rise was spread almost evenly between public and private, residential and nonresidential. For the first ten months of the year, private construction is up 11.2% compared to the same period in 2014. The October level of total private construction was nearly 16% higher than last year's pace. Once again, the increases were spread evenly between residential and nonresidential activity. That is interesting since some of the housing reports have been less than stellar. For example, yesterday's National Association of Realtors' Pending Home Sales numbers were up less than expected. The problem facing the housing market seems to be supply, but despite the solid construction numbers, there are still not a lot of homes, new or existing, that are on the market. It looks like 2015 will be a great year for builders and the good times seem to be getting better.

MARKETS AND FED POLICY IMPLICATIONS: While everyone likes to focus their attention on manufacturing, it is the services component that generates most of the jobs. Manufacturers employed less than 9% of all employees and just a little over 10% of private sector workers. The manufacturing job slowdown probably reduced the total average monthly job gains by less than 10,000 per month. That is a concern, but not so great that it changes the perception that the job market is strong. The real problem, as we all know, is in the mining/oil production sector. Despite the free fall in oil patch activity, total construction in the rest of the economy is doing quite well. That is what should be the take away and what the Fed members will likely consider as they barrel toward the first rate hike in two weeks (most likely). With the November jobs report being released on Friday, investors will probably assume today's numbers changed no minds at the Fed and react accordingly.

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