NAM: Monday Economic Report

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The U.S. economy grew 0.7 percent at the annual rate in the first quarter, starting 2017 off on a soft start as expected. Weaker consumer and inventory spending in the first quarter could explain the lower figures, with government spending also serving as a drag on the headline number. We traditionally have a sluggish first quarter followed by a strong rebound in the second quarter, and in that context, this report is less discouraging than it might seem at face value. My current forecast is for 2.8 percent growth in real GDP in the second quarter, with the economy expanding 2.1 percent for 2017 as a whole. Of course, these estimates might drift higher with passage of more pro-growth policies, especially in terms of the outlook later this year and into 2018.

In terms of manufacturing activity, a number of economic indicators suggest some cooling in the expansion rate in recent data even as they continue to reflect progress. For instance, growth in new durable goods orders eased in March but expanded for the third straight month, reaching a five-month high. Overall, new durable goods demand has continued to trend in the right direction after stalling for much of the past few years, with year-over-year growth of 4.5 percent. At the same time, sentiment surveys from the Dallas,Kansas City and Richmond Federal Reserve Banks each reported slower growth in April from prior months, including for many of the key measures of activity. Yet, respondents in each of these reports positively reflect on the gains made since last autumn, with leaders in the sector mostly optimistic in their six-month outlook and in their expectations for hiring and capital spending.

In a similar way, consumer confidence has pulled back from multiyear highs but remained elevated. In April, the two consumer surveys were mixed. The survey from the Conference Board in April decelerated from the March reading, which was the highest level since December 2000. The longer-term trend remained favorable, with 30.2 percent of respondents saying conditions were “good” and 13.8 percent indicating conditions were “bad.” Meanwhile, sentiment in the report from the University of Michigan and Thomson Reuters inched up in April but continued to be weaker than in January, which had been the survey’s best reading in 13 years. Richard Curtin, the Surveys of Consumers chief economist, said that confidence has remained sharply divided along partisan lines since the election. With that said, the underlying data are consistent with 2.5 percent growth in consumer spending in 2017.

We will be looking for additional signs of growth in manufacturing this week, with the Institute for Supply Management’s survey expected to report the eighth straight monthly expansion in April. Demand and production should continue to increase rather strongly, though a slight pullback from March’s reading is possible, mirroring other sentiment surveys. We anticipate additional hiring for the month, with new jobs numbers out on Friday. Manufacturers have added 67,000 workers over the past four months, and we expect at least 10,000 more in April.

The Federal Open Market Committee will convene May 2–3, although it is not likely to raise short-term interest rates at this meeting. The Federal Reserve’s next hike is predicted to be during its June 13–14meeting. Other highlights this week include new figures for construction spending, factory orders and shipments, international trade, labor productivity and personal income and spending.

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