NAM: Monday Economic Report

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

11-14 report.jpg

In a week with little new data, the surprising upset in the general election dominated both headlines and financial market discussions. Equity markets initially reacted with shock at the election outcome, but after a few days, the Dow Jones Industrial Average hovered around a new all-time high. This extraordinary achievement in stock prices represented a sense of optimism following an extremely divisive campaign, helped along by gracious and conciliatory comments from the candidates themselves. For manufacturers, we hope that this renewed sense of unity encourages our nation’s leaders to enact pro-growth policies and to find solutions to our long-term challenges, as outlined in a letter released the day after the election to President-elect Donald Trump. Those policies include a series of priorities outlined earlier this year in the NAM’s “Competing to Win” document.

Beyond the election, there were a few releases on the manufacturing labor market—one looking at the past and the other providing some possible encouragement for the future. The Business Employment Dynamics (BED) report said that net employment growth declined in the first quarter for the third consecutive quarter. The data are released with a two-quarter lag, so they are mostly a reminder of the pullback in hiring earlier this year. The BED release also found that start-up rates for new manufacturing establishments have continued to fall, with the rate of employees per start-up also easing.

More positively, manufacturing job openings rose slightly, up from 326,000 in August to 334,000 in September. Openings have drifted lower since achieving an all-time high of 397,000 in April. Through the first three quarters of 2016, job openings have averaged 349,000 per month, up from 311,000 for 2015 as a whole. As such, we have continued to see relatively healthy gains in manufacturing job openings, despite some easing over the past few months. This gives us optimism for faster hiring growth moving forward. At the same time, hiring has remained quite soft despite elevated job opening rates, at least for now. Indeed, net hiring was barely positive in September, even as it marked the fourth consecutive month of net gains.

Meanwhile, consumer confidence rebounded in November after falling to a 13-month low in October, according to preliminary data from the University of Michigan and Thomson Reuters. Note that this is a preliminary figure, and it will be interesting to see how the final data, which will be released on November 23, are impacted by the election results. The good news is that consumers appear to be more willing to use their credit cards when making purchases, moving on from some of the caution earlier in the year. U.S. consumer credit outstanding rose 6.7 percent at the annual rate in September. Across the past 12 months, consumer credit has increased 6.0 percent, with roughly equal gains for both revolving and nonrevolving credit lines. That mirrors stronger consumer spending data of late.

At the same time, the Small Business Optimism Index from the National Federation of Independent Business increased to its highest level year to date but subdued relative to what we might prefer. Soft sales and earnings data help to provide an explanation for why small business owners are anxious, with respondents citing economic conditions and the political climate as a concern. Following the election outcome, it will interesting to see if that index shifts somewhat in terms of sentiment.

This week, we will get a number of economic reports about the current health of the manufacturing sector. First and foremost, the Federal Reserve will release industrial production figures for October, and we will be looking for manufacturing production to build on the rebound in September data. With that said, output in the sector has been essentially stagnant year-over-year as manufacturers have struggled with global headwinds and economic uncertainties. We will be looking for an acceleration in that pace moving forward. In addition, there should be similar trends in the regional surveys from the Kansas City, New York and Philadelphia Federal Reserve Banks. Other highlights include the latest data on consumer and producer prices, housing starts and permits, the leading economic index, retail sales and state employment.

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