US manufacturing sector weakest in nearly three
US manufacturing activity slumped to its lowest level in nearly three
years in March as new orders continued to contract and activity could
decline further amid tightening credit conditions. The Institute for
Supply Management (ISM) said that its manufacturing PMI fell to 46.3
last month, the lowest reading since May 2020, from 47.7 in February.
Economists polled by Reuters had forecast the index dipping to 47.5.
It was the fifth straight month that the PMI remained below 50, which
indicates contraction in manufacturing. But other data suggests that
manufacturing, which accounts for 11.3% of the economy, continues to
Manufacturing expanded at a 4.5% annualized rate in the fourth quarter,
the government reported last week. Reports last month also showed orders
for capital goods excluding aircraft eking out a small gain in February
as did manufacturing output.
Of the 18 manufacturing industries surveyed by ISM, 12 reported
contraction in March with the Furniture and Related Products sector
reporting the biggest contraction.
US and Canadian new home starts declined in March
US home building pulled back in March, having fallen 0.8% in February
when multifamily home construction failed to keep pace with an increase
in construction of single-family homes.
Housing starts, a measure of new home construction, was down 17% from a
year ago according to data released by the US Census Bureau. After
surging in February following five consecutive months of decline March
housing starts fell to a seasonally adjusted annual rate of 1.420
million, down from the revised February estimate of 1.432 million.
Single‐family housing starts in March rose 2.7% from the revised
February figure, at a seasonally adjusted annual rate of 861,000.
US housing starts recorded big drops in May and July last year when
spiking mortgage rates pushed many prospective home buyers to the
sidelines. Starts bounced back slightly in August but fell through
January. Since then, with more positive economic news, building has
As mortgage rates trended lower, builders have begun to feel more
optimistic that conditions may improve in 2023.
Building permits, which track the number of new housing units granted
permits, also fell in March following two months of gains, falling 8.8%
from the revised February rate, and were down 24.8% from a year ago. In
March, building permits were at a seasonally adjusted annual rate of
Canadian housing starts fell more than expected in March compared with
the previous month as groundbreaking decreased on multiple unit and
single-family detached urban homes.
The seasonally adjusted annualised rate of housing starts fell 11% to
213,865 units from a revised 240,927 units in February, the Canadian
Mortgage and Housing Corporation said.
Sales for existing homes slumped in March
Existing-home sales in the US edged lower in March according to
the National Association of Realtors. Total existing-home sales fell
2.4% from February to a seasonally adjusted annual rate of 4.44 million
in March. Year-over-year sales dipped 22% (down from 5.69 million in
Data on mortgage applications was lower as well. The Mortgage Bankers
Association reported that higher lending rates have led to a 10% decline
in loan applications as would-be buyers face affordability challenges.
"Home sales are trying to recover and are highly sensitive to changes in
mortgage rates," said NAR Chief Economist Lawrence Yun. "Yet, at the
same time, multiple offers on starter homes are quite common, implying
more supply is needed to fully satisfy demand. It's a unique housing
Existing-home sales in the Northeast were unchanged from February at an
annual rate of 520,000 in March, but down 21.2% from March 2022. In the
Midwest, existing-home sales retracted 5.5% from one month ago to an
annual rate of 1.03 million in March, falling 17.6% from the previous
Existing-home sales in the South decreased by 1.0% in March from
February, to an annual rate of 2.07 million, a 20.4% decrease from the
prior year. In the West, existing-home sales declined 3.5% from the
previous month to an annual rate of 820,000 in March, down 30.5% from
the prior year.
The median price for an existing home fell by 0.9% from last March,
dropping to US$375,700 this year.
This drop is the largest since January 2012, when home prices fell 2%
year on year. It’s also the second month in a row that home prices fell.
US hiring remains steady
The US Department of Labor’s report on US employment for March
showed hiring slowed more than expected but remained steady. The jobs
report showed that American employers added 236,000 jobs last month, a
slowdown from February’s 326,000 and slightly below economists’
expectations. Wages, meanwhile, grew 0.3% from February to match
expectations. But year-on-year wage gains slowed to 4.2% from 4.6%.
Employment continued to trend up in leisure and hospitality, government,
professional and business services and health care but showed little
change over the month in other major industries, including construction
A cooler job market is exactly what the US Federal Reserve (Fed) is
trying to achieve. Raising rates is one of the Fed’s most effective ways
to undercut inflation but it’s a notoriously blunt tool that works only
by slowing the entire economy.
Many economists fear a recession later this year. But some say a narrow
possibility still exists where the Fed could raise rates just enough to
get inflation fully under control without causing a severe recession.
Consumer sentiment picked up in April
American consumers appear as uncertain over the state of the
economy as professional pundits and the Fed. The University of
Michigan’s estimate of consumer sentiment released in April found
consumers slightly more optimistic with its overall index rising to 63.5
from 62 in March.
However, expectations for inflation a year from now rose sharply, to
4.6% from 3.6% a month earlier while staying in the same range of 2.9%
to 3.1% they have been in 20 months. That comes even as recent reports
on inflation have shown it dropping markedly.
“Consumer sentiment was essentially unchanged this month, inching up
less than two index points from March,” said Joanne Hsu, Michigan survey
Director. “Sentiment is now about 3% below a year ago but 27% above the
all-time low from last June.” Hsu added that sentiment rose among
lower-income consumers while falling among consumers with higher
incomes. “While consumers have noted the easing of inflation among
durable goods and cars, they still expect high inflation to persist, at
least in the short run,” Hsu said.
Growth of large national home
While the US construction industry remains one of the economy’s
most fragmented industries large national home builders have seen
growing levels of concentration in market share. Of the 65,000 or so
single-family home builders in the US the 100 largest builders now
account for more than 50% of all single-family home sales, up from one
third back in 2001.
The 10 largest builders now account for about a quarter of all
single-family homes sales nationally while the top two (D.R. Horton and
Lennar) account for about one in every six new single-family homes sold.
A recent Joint Center for Housing Studies at Harvard University working
paper suggests that these large builders are increasing their scale
through strategic acquisitions and by concentrating their activities in
select major metropolitan areas across the country.
The Center’s Kermit Baker writes that for the flooring industry this
increased concentration means that securing just a few new customers can
yield a significant increase in market share. With large builders
looking to fuel their growth by concentrating in key metro areas
flooring suppliers need not have a robust national footprint to service
these customers in selected markets.