Construction spending still weak

Not much news here: construction spending continues to be quite weak. Residential construction has been relatively flat and very low for over two years now. As the chart below shows, residential construction has now reached its smallest level ever relative to the overall economy. Nonresidential construction last year looked to be stabilizing, but in recent months has been declining again.

Manufacturing continues to be very strong

The ISM indices continues to reflect very healthy conditions in the manufacturing sector, with the April reading exceeding already-high expectations. The chart above suggests that with manufacturing this strong, the economy should be growing at a 5-6% annualized rate, much higher than the meager growth numbers we have seen in recent quarters. At the very least I think this suggests that economic growth should be accelerating over the course of this year.

Export orders have been volatile of late, but continue to reflect fairly robust conditions.

A clear majority of purchasing managers continue to report paying higher prices, which is not surprising given the rise in commodity and energy prices. This is bad to the degree that higher prices are being driven by accommodative monetary policy, but good to the degree that higher prices reflect generally strong global demand.

The employment index continues to run at very high levels, higher than anything we've seen since 1972.

Manufacturing and GDP

This chart is a complement to an excellent post by Mark Perry which shows and explains how manufacturing has been shrinking as a share of both U.S. and world GDP for decades, and another post of his which shows the dramatic gains in worker productivity that have enabled manufacturing to decline as a share of total economic activity, even as total manufacturing output, economic activity and living standards have boomed. The chart above highlights how China is an exception to the rule, since manufacturing as a share of China's GDP has been relatively stable for the past four decades.

In this same vein, I would add that agriculture was once about half of total US GDP, whereas now it is only a small fraction, yet we feed ourselves and are a net exporter of food. Here again we see how tremendous productivity gains have enabled us to devote fewer and fewer resources to the production of essential goods. This is as it should be.

There is no decline in US manufacturing, and China is not stealing jobs from us. Global trade is a win-win situation for all.