Construction spending down, ISM activity lower and General Motors (GM) announces another recall

Bourbon & Bayonets / Friday, January 2nd, 2015

Markets were heading higher after construction spending dropped in November. The Commerce Department announced that U.S. construction spending fell unexpectedly by 0.3% to a total annual rate of $975 billion. This marks the first decline for the sector since June. There was an upward revision of October’s data to show a 1.2% increase instead of the previously reported 1.1% increase. The drop was not in line with the projected 0.3% gain economists’ were expecting. The fall was partially attributed to the government withdrawing spending by 1.7%. When compared with last year, spending was still up 2.4%. Anika Kahn, a senior economist with Wells Fargo, said, “As the labor market continues to show improvement and wages increase, especially for young adults, we expect the pace of single-family building to pick up this year.”

In keeping pace with declines, U.S. manufacturing data came in slower than expected for December. The Institute for Supply Management announced that it’s index of activity dropped from 58.7 in November to 55.5. This marks the lowest level recorded in six-months. The data came in below economists’ expectations of a 57.6 reading. Any reading that polls in above 50 still indicates an expansion for the sector. Guy Berger, an analyst with RBS Securities, said, “These were readings that in any ordinary time would be considered excellent.”

Shares of General Motors Company (GM) were trading lower after the car giants announced, yet again, more recalls. The problem linked to an ignition problem, however it is not tied to the previous ignition switch recall. GM is recalling 83,572 pick up trucks and sport utility vehicles. Despite the large recall numbers, they are expecting less than 500 will be affected by the defect. The problem is the ignition lock actuator that has an outer diameter that surpasses specifications. The problem noted was that ignition key could get stuck in the start position. If the vehicle is driven in that mode and experiences a jarring event, the ignition lock cylinder could be moved in the “accessory” position. The company’s spokesperson, Alan Alder, said, “The timing of the key movement into the accessory position relative to a crash sensing could result in the air bags not deploying in certain crashes.” Vehicles being affected are certain Chevrolet Silverado light-duty and heavy-duty pickups, Avalanche, Taho and Suburban, Yukon and Yukon XL and the Cadillac Escalade. Year models range from 2011 and 2012.

That’s all for today,

Warren Gates, Normandy Research

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