• ISM Contracts For First Time In 3 Years
• Euro Zone Strife To Blame
• Homebuilders Support Construction Data

The United States of America’s Institute for Supply Management (ISM) index fell to a fresh low in June, dropping to 49.7 from 53.5 the previous month.

Having remained above 50 in ISM data over the past three years – a level that indicates growth in the manufacturing sector – the US index has now mirrored the majority of the globe in its weak performance. The results have surprised even the most pessimistic forecasts from top forex brokers, with the median prediction from top industry bodies in a Bloomberg survey calling for a decline to 52.

Blame is thus far being laid at the door of the euro zone. Continued strife continues to take a toll on the spending power of debt-laden nations and recent PMI surveys from across the euro zone have yielded a similarly dreary picture. While U.S. manufacturing contracted from the first time in three years, the euro zone experienced its eleventh consecutive decline in June. “The investment picture is softening in the face of all the uncertainty,” Michael Hanson, a senior U.S. economist at Bank of America Corp. in New York, said before the report.

“Europe is already weighing on the manufacturing sector, and U.S. growth is decelerating.”

Adding insult to injury for the global markets, the Chinese PMI fell to 48.2 in June from 48.4 a month earlier according to a report by Markit published Monday. The downbeat news from the second-biggest economy in the world signals yet more uncertainty for the euro zone and its dependents.

Homebuilders Scaffold Construction Spending

But while the ISM index contracted, total spend on construction within the nation shot up. Reaching its highest level in over two years, the 0.9 percent climb in spend has been attributed to a marked improvement in the housing market. The data shocked economists who had foreseen an increase of 0.2 percent.

Commercial projects suffered off the back of increases uncertainty over the future of international financial markets; homebuilding, however, flourished. Perhaps also indicative of the instinctive inclination to bed down in the face of fierce storms, homebuilding outlays increased 3 percent, the biggest percentage increase since December.

Despite challenges across many of its indicators – not least the downbeat GDP data released last week – data is now suggesting that the U.S. housing market is on the up. Data released May showed that more homebuilders began work on single-family homes and applied for more permits to begin work than in three and a half years.

Rising house prices and tumbling mortgage rates have reportedly encouraged increasing numbers of buyers to take the plunge, with supply remaining at a premium. “We’re definitely seeing a rebound in home building, absolutely no question about that,” said Gus Faucher, a senior economist at PNC Financial Services Group Inc. in Philadelphia. Speaking about the nervous business sector, he added: “Construction is going to be a positive for growth, primarily on the residential side this year, and maybe more on the commercial side in 2013.”

Sarah Cox, Markets Writer. ForexSpace.com