US construction spending zooms to 8 year high, manufacturing slows

Amidst the disappointment caused by the dismal performance of US manufacturing data in November, one sector that is cheering all is construction, where spending has zoomed to an eight-year high in October. It seems to prove that the expansion of the economy is way beyond the indicators shown by consumer spending levels.

According to the US Commerce Department, it was the highest jump in construction-spending since December 2007 and has been increasing every month in 2015, the BBC reported. The sector was badly hit in the aftermath of the recession of 2008. But construction spending reached a seasonally adjusted rate of US$1.11 trillion (AU$1.5 trillion) even though US consumer spending grew 0.1 percent compared with the previous month of September.

Surging American sector

The US construction output is set to surge in the coming years, according to a new study. The report predicts an uptick in US construction and it would also help worldwide construction output to balloon 85 percent or $15.5 trillion by the year 2030.

The report was prepared by a team of researchers at Global Construction Perspectives and Oxford Economics, who estimated that the growth in American construction activity will be outpacing China over the next 15 years.

“China's share of the world construction market will increase only marginally as growth slows in the world's largest construction market to 2030," Graham Robinson, executive director of Global Construction Perspectives, said in a statement.

Manufacturing woes

Regarding US manufacturing, it fell in November, according to the Institute for Supply Management (ISM). It is in line with the global trend of falling factory production, added the BBC report.

The ISM said factory activity index plunged to 48.6 in November from 50.1 in October. Below 50, it signals heavy contraction. New orders and production declined even as hiring increased. The inhibiting factors cited are the strong dollar and China slowdown.

Diversification essential

However, the perception of slowing manufacturing mirroring an overall economy has been dismissed by an expert. The US has evolved into a sector-driven economy, according to Steve Menaker, who is the national consumer and industrial products team leader at RSM US, formerly known as McGladrey, reports Industry Week.

“No longer can you assume that when the economy is moving along, everyone is participating," he said and added that change in the dynamics of a sector is unpredictable. He cited the case of a manufacturer of heavy equipment for the mining industry.

“They were planning three years ago for the never-ending storm of doubling their business,” he noted. “Now they are facing declining sales.” He said the company's leaders are exploring a new sector that is doing well, may be automotive or aerospace.

Menaker, with his extensive experience in public accounting cautions companies against selling too much into one sector. They need to diversify into others sectors to avoid the trap of being hooked into one cyclical industry, the expert said.

For feedback/comments, contact the writer at feedback@ibtimes.com.au or let us know what you think below.