The 2020 Mid-Year Economic Update_long

2016 Begins with a Whimper

Manufacturing, construction spending reports put damper on start to new year.
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Many respondents in the MDM Industry Outlook Survey listed the economy as a top concern, and the latest Manufacturing ISM Report on Business and construction spending report could escalate unease among distributors to begin 2016.

Though construction spending improved from the same month a year ago, it registered its first month-over-month decline in close to a year and a half, slipping 0.4 percent in November and slightly blemishing this otherwise stable sector.

And while the overall economy grew last month, the manufacturing sector contracted, according to supply executives in the latest Manufacturing ISM Report on Business. The December PMI was 48.2 percent, a decrease of 0.4 percentage points from the November reading. And the employment index registered 48.1 percent, 3.2 percentage points below the November reading of 51.3 percent.

Despite the pair of less-than-enthusiastic reports to begin 2016, unemployment is at prerecession levels and U.S. GDP continues to climb, giving the U.S. economy a stronger footing than it might appear. The Federal Reserve last month raised the federal funds interest rate for the first time in nearly seven years, and the MAPI Foundation forecasts manufacturing production growth of 2.6 percent in 2016 and 3 percent in 2017.

While low oil & gas prices might still pose a negative drag on the economy, some are finding the positives in it, from lower transportation costs to low fuel prices keeping "full-size SUV and truck sales at high volumes," according to a plastics & rubber products executive in the ISM Report on Business.

Despite a host of concerns ranging from the economy to oil & gas to China's instability, look for a turnaround in the second quarter, says Alan Beaulieu, president of ITR Economics, who delivered the keynote at the Heating, Air-conditioning and Refrigeration Distributors International conference last month. All of these factors are "on the verge of improving," he says.

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