NAM: Monday Economic Report

In preliminary figures, the consumer sentiment rebounded in April after pulling back somewhat in the prior two months. Confidence remained high and not far from January’s 13-year record. Indeed, the underlying figures suggest that Americans remain quite upbeat. That message is also being conveyed in the spending data, with retail sales up 5.2 percent over the past 12 months. The American consumer has been more willing to open to open his/her pocketbook, especially when compared to this time last year. With that said, retail spending edged slightly lower in March for the second straight month, down 0.2 percent. Softer automotive sales help to explain at least part of this weakness. Excluding motor vehicles and parts, retail sales held steady in March.

In a similar manner, sentiment among small business owners in March remained near the 12-year high seen in January even as it has eased a little since then. The Small Business Optimism Index edged down from 105.3 in February to 104.7 in March, which was not far from the 105.9 reading recorded in January. One year ago, the index was 92.6. Along those lines, the percentage of respondents suggesting that the next three months would be a “good time to expand” remained unchanged at 22 percent in March, down from 25 percent in January but well above the 6 percent who said the same thing in March 2016. With that in mind, respondents have upped their plans for more workers and capital spending. On the investment front, 64 percent of small business owners said that they had made a capital expenditure in the past six months, its highest reading since December 2013.

In another positive development, total hires in manufacturing in February rose to the highest level since June 2008. The sector edged up from 304,000 in January to 305,000 in February. This represented notable progress from just 268,000 six months ago. At the same time, total separations—which include quits, layoffs and retirements—decreased from 304,000 to 292,000. Overall, net hiring (or hires minus separations) improved from zero in February to 13,000 in March, its fastest pace in seven months. Hopefully, the pace of new hiring will continue to improve moving forward, and with job postings elevated, the prospects are encouraging. In fact, manufacturing job openings have continued to trend higher since weakening last autumn. Postings in the sector rose from 361,000 to 364,000, its highest level since July’s 15-year high (394,000).

Meanwhile, lower energy costs helped to push down both consumer and producer prices in March. That will help to alleviate some of the pressure on the Federal Reserve as it seeks to normalize rates in the face of rising pricing pressures and stronger economic growth. (In the latest Wall Street Journal survey, of which I am a participant, 78.7 percent of economists expect the Federal Open Market Committee (FOMC) to raise federal funds rates again at its June 13 – 14 meeting.) With that said, it is also clear that inflationary pressures have accelerated over the past few months. Overall, producer prices for final demand goods and services have risen 2.3 percent since March 2016, its highest year-over-year rate since March 2012. Core producer prices–which exclude food, energy and trade services—grew 1.75 percent year-over-year in March, up slightly from 1.7 percent in February. That year-over-year pace was the fastest rate since August 2014.

This week, we will find out whether the manufacturers can increase production for the seventh straight month, building on recent progress in the sector. While businesses continue to grapple with a number of headwinds, signs point toward the global economic environment for manufacturing trending in the right direction. This can be seen in regional sentiment surveys, as well, including reports from the New York and Philadelphia Federal Reserve Banks, both of which will release data from their April surveys this week. Other economic highlights of the week include the most recent updates for housing starts and permits, leading indicators, real GDP by industry and state employment.

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