US Manufacturing Strengthens Despite Service Sector Slump




AmCham Colombia presents a new edition of the United States Observatory, a weekly update on the most relevant news and information regarding the economy and commerce of this country.

Bogotá, July 27, 2021 (AmCham Colombia). – The preliminary report of Markit’s Composite PMI index, which tracks the manufacturing and services sectors, fell to a four-month low in June of 59.7 from 63.7. However, the result is robust in the current context of expansion in these industries for a year.

The manufacturing sector continues to grow according to its PMI indicator, which stood at 63.1, a positive result compared to the figure of 62 expected by the market. In addition, the rate of expansion in production accelerated to one of the fastest in the past seven years in contrast to recent reports of shortages of inputs and materials.

The backlog rate in orders accelerated to the second fastest on record (since May 2007), despite job creation increasing significantly in the last three months. Delivery time in the industry was notably extended to its second highest record, where the supply chain struggled in the face of efforts to increase purchasing activity and build safety stocks.

On the other hand, in June, service providers registered a drop of 4.8 percentage points, placing the PMI indicator for the sector at 59.8, reflecting a new loss of growth amid friction in the labor market and scarcity of inputs. Purchase decisions have also been affected by suspicion of the behavior of the general price level.

The spread of new COVID-19 infections due to the Delta variant poses a challenge for economic activity, especially in regions with low vaccination rates, where it could cause nervousness in consumer preferences. Therefore, a differential effect between zones is expected given the current epidemiological panorama.

Home construction licenses fall 5.1%

The real estate market had a particular behavior in June due to the fact that the construction of houses increased more than expected, while the permits for the execution of future houses fell to their lowest level in eight months, explained in part by the doubt in the prices of construction materials, as well as the labor shortage.

By June, the execution of 1,643 million homes began at a seasonally adjusted annual rate of 6.3%, an increase greater than the expected figure of 1,590 million. However, May data was revised down to 1,546 million compared to 1,572 million units previously reported.

Permits for future home construction fell by 5.1% to 1.598 million units in June, the lowest level since October 2020, a figure below the forecast of 1.7 million. While demand for homes is buoyed by low mortgage rates and record-high low wood prices, more are being paid for materials like steel, concrete and lighting.

Current real estate market conditions suggest that housing foreclosures will be slower in the coming months due to lower permitting rates with respect to the construction of new residences. Additionally, finished properties stood at 1,324 million, 1.4 percent less than the revised estimate for May.