NAM: Monday Economic Report

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While we have seen improved sentiment lately, it is clear that manufacturers struggled mightily over the past two years to increase international demand, particularly with a strong U.S. dollar and lingering economic challenges to key markets. The U.S. trade deficit, which was $44.3 billion in December, totaled $502.3 billion in 2016 as a whole. That was the highest annual trade deficit since 2012, and it edged slightly higher from the $500.4 billion deficit in 2015. Specific to the sector, U.S.-manufactured goods exports fell 3.87 percent in 2016, down from $1.32 trillion in 2015 to $1.27 trillion in 2016, using seasonally adjusted data from TradeStats Express. This extended the 6.19 percent decline in 2015. Moreover, exports were lower in nine of the top 10 markets for U.S.-manufactured goods in 2016, with a small gain in exports to Japan. Nonetheless, the December trade data seem to indicate a pickup in trade volumes, both for goods exports and goods imports, and we hope that bodes well for improvements in exports in 2017.

In other news about the sector, manufacturing job openings ticked higher, up from 314,000 in November to 325,000 in December, a three-month high. Postings in the sector have trended lower since achieving an all-time high of 397,000 in April. On the positive side, job openings remain quite elevated overall, especially relative to net hiring. As such, we would expect employment growth to accelerate with a turnaround in demand and production. For now, however, job growth has continued to be weak. Net hiring (or hiring minus separations) in the manufacturing sector rose from a decrease of 3,000 workers in November to a gain of 9,000 employees in December. In the larger economy, nonfarm job openings changed little, down from 5,505,000 in November to 5,501,000 in December.

Meanwhile, consumer confidence pulled back in February from January’s levels, which had represented the survey’s best reading in 13 years. The Index of Consumer Sentiment declined from 98.5 in January to 95.7 in February, according to preliminary figures. Richard Curtin, the Survey of Consumers chief economist, noted that confidence has been sharply divided along partisan lines since the election. With that said, Americans are more confident today than just a few months ago, which is encouraging. The stronger perceptions about the economic outlook have helped to fuel more spending, with Americans more willing to make purchases, including with credit cards. Indeed, U.S. consumer credit outstanding rose 4.5 percent at the annual rate in December, with year-over-year growth of 6.4 percent.

We will be looking for signs of improved manufacturing activity this week with the release of January’s industrial production data. Manufacturing production rebounded somewhat in December, but over the past 12 months, output was up a rather stagnant 0.2 percent. Sentiment surveys have reflected increased optimism of late, and we will get another look at such assessments with new surveys from the New York and Philadelphia Federal Reserve Banks. Other highlights this week include new releases for consumer and producer prices, housing starts and permits, leading indicators and small business confidence.

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