NAM: Monday Economic Report

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After a busy few weeks of data, there was a bit of a breather on new economic indicators out last week. Of the reports that were released, one of the standouts was nonfarm job openings, which exceeded 6 million for the first time ever. This was yet another sign that the labor market has improved significantly in recent months. Not surprisingly, with the U.S. economy approaching “full employment,” many businesses cite challenges with attracting new talent as one of their top concerns. Postings in the manufacturing sector have also been elevated in recent months, including March’s all-time high of 404,000. However, in April, the pace of job openings decelerated to 359,000, and net hiring weakened. Nonetheless, I would continue to expect stronger job openings and hiring data moving forward, especially given recent improvements in the economic outlook for the sector.

Business economists continue to expect modest growth in the U.S. economy, with real GDP up 2.2 percent and 2.4 percent in 2017 and 2018, respectively. With that said, nearly 60 percent of respondents in the latest National Association for Business Economics Outlook Survey felt that there were more upside risks to the economy, especially given possible fiscal policy changes, with 36.2 percent feeling there were more downside risks. For manufacturers, economists see industrial production rising 1.5 percent in 2017, with 2.4 percent growth in 2018. On the other hand, light vehicle sales in 2017 are expected to slow somewhat while continuing to remain strong overall, down from an estimate of 17.5 million units in March to 17.2 million units in this release. The forecast is for 17.1 million units sold in 2018. At the same time, housing starts are anticipated to increase from 1.27 million units in 2017 to 1.35 million units in 2018.

Meanwhile, new factory orders edged down in April, pulling back slightly from March’s fastest pace since November 2014. Much of that decline stemmed largely from a decrease in nondefense aircraft and parts orders, which often can be quite volatile from month to month. Overall, new factory orders, which have struggled mightily over the past few years, have trended largely in the right direction over the past few months, up 3.8 percent since April 2016. Excluding transportation, the gains were slightly larger, up 6.0 percent year-over-year. There were similar trends for manufactured goods shipments, despite being unchanged in April. Shipments remain not far from February’s level, which was the highest since December 2014. On a year-over-year basis, factory shipments have risen 4.7 percent since April 2016, or 5.9 percent excluding transportation.

The overarching trend in much of the latest data released across the past few weeks has been quite similar. There have been notable improvements in activity, especially relative to one year ago, even as we have seen some slippage from the paces earlier this year. This includes manufacturing data as well as retail sales. Along those lines, the April U.S. consumer credit outstanding figures suggest that Americans held back somewhat in their willingness to take on credit when making purchases. Consumer credit rose 2.6 percent at the annual rate in April, its slowest monthly rate since December 2015. This would indicate a more cautious consumer, and it would be a turnaround from the larger trend over the past year. Prior to this report, data suggested an increased willingness for Americans to spend and take on credit. With that in mind, we will see if the April data were an outlier or the beginning of a new trend in future releases.

Much of the focus this week will be on the Federal Reserve, which is widely expected to raise short-term interest rates for the second time this year at the conclusion of its June 13–14 meeting. The Federal Reserve will also release May industrial production data. Manufacturing output rebounded strongly in April, and another expansion in the latest figures is expected. In general, the data should continue to reflect progress for the sector relative to what was seen one year ago, with manufacturing production up 0.8 percent since April 2016. There will also be surveys from the New York and Philadelphia Federal Reserve Banks for June, which both diverged in their May reports, with respondents to the Philadelphia Federal Reserve survey still reporting strong growth but the Empire State report stagnating.

Other highlights include new data on consumer confidence, consumer and producer prices, retail sales, small business optimism and state employment.

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