NAM: Monday Economic Report

Associated Industries of Missouri is the sole official designated partner of the National Association of Manufacturers in Missouri.

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The U.S. economy grew 1.4 percent at the annual rate in the second quarter, up from 1.1 percent in the prior estimate, according to the latest revision from the Bureau of Economic Analysis. The revision stemmed largely from improved data for nonresidential fixed investment. Yet, even with this change, businesses spent less for both structures and equipment, and there continued to be large drags from private inventories. In contrast, personal consumption expenditures and net exports were positive contributors to real GDP. Consumers picked up the pace of spending in the second quarter, rebounding from more cautious activity in the first quarter. At the same time, net exports continued to grow at a sluggish pace, highlighting the difficulties in growing international demand in light of the strong U.S. dollar and economic challenges abroad, but modestly adding to economic growth in the second quarter for the first time in a year.

Along those lines, the U.S. economy increased just 1.1 percent in the first half of 2016, which remains a disappointing rate of growth for manufacturers. We would expect third quarter real GDP to grow around 2.5 percent, boosted by somewhat better—but still quite reserved—consumer spending and investment data. For the year as a whole, the U.S. economy should expand by 1.6 percent.

There was mixed news about consumers last week. On the positive side, consumer confidence jumped strongly in September, according to the Conference Board, increasing to its highest level since August 2007. Increased labor market and income expectations helped to buoy that report. In contrast, the competing survey from the University of Michigan and Thomson Reuters remained more subdued, even as sentiment increased for the month. It was this latter survey that more closely paralleled the latestpersonal spending data, which was unchanged in August. Durable and nondurable goods were both lower in this report, with service-sector spending marginally higher. This would suggest a pullback in spending in August, which mirrored softness in many other indicators, including retail sales.

With that said, Americans have largely continued to grow their purchases over the past 12 months, up 3.6 percent since August 2015. That year-over-year pace was off from 3.8 percent in July, but up from 2.9 percent in March. That longer-term trend illustrates an increased willingness for the public to open their pocketbooks than earlier in the year, even if the August numbers were more disappointing. Along those lines, the saving rate has decreased from 6.2 percent in March to 5.7 percent in August. Keep in mind what was stated in the first paragraph—consumer spending has largely been a bright spot in the U.S. economy, even if the pace of growth suggests that some consumers are holding back from larger spending due to economic uncertainties.

Meanwhile, reports continue to show challenges in the manufacturing sector. New durable goods orderswere unchanged in August, continuing a weak trend over the past year or so. On a year-over-year basis, sales have decreased 1.3 percent since August 2015. One positive in this latest report was “core” capital goods orders (or nondefense capital goods excluding aircraft), which were up 0.6 percent in August. That might be more encouraging, however, if demand for core capital goods did not decline 3.1 percent over the past 12 months. Moreover, surveys from the Dallas and Richmond Federal Reserve Banks reflected negative sentiment in September, with the former having contracted now for 21 straight months. Despite the negative headline figure, however, most of the underlying data points in the Dallas Federal Reserve release indicated strengthening levels of growth in September, and manufacturing leaders in both surveys were mostly positive about the next six months.

Turning to this week, the September labor market numbers will be closely watched, particularly after disappointing job growth in August. Manufacturing employment has declined by 39,000 workers on net year-to-date, even as job openings in the sector have soared to an all-time high. We hope the September figures will begin to show a rebound in manufacturing job growth. We will also be looking for stronger manufacturing activity in the new report from the Institute for Supply Management, which indicated a contraction in its prior release. Other highlights this week include new data for construction spending, factory orders and shipments and international trade. Advance statistics, released last week, suggest that the U.S. trade deficit edged down slightly in August, with an increase in goods exports outpacing a slight gain in goods imports.

Chad Moutray, Ph.D., CBE
Chief Economist
National Association of Manufacturers