NAM: Monday Economic Report

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Last week was a slower one for indicators, but the data points that were released reflected mostly positive trends, with the global economy showing signs of continued progress. Along those lines, the IHS Markit Flash Eurozone Manufacturing PMI rose once again to its fastest pace since April 2011. This suggests that manufacturers in Europe have mostly brushed off political uncertainties, with economic growth on the continent continuing to trend in the right direction. New orders and output accelerated further in June, with both at levels not seen since early 2011. Looking ahead six months, the future output index reflected healthy expectations moving forward, with that measure at its highest point since it was introduced in mid-2012. In addition, IHS Markit also released preliminary figures for France and Germany, which were both promising despite mixed results in June.

In the United States, manufacturing activity remained bright, even as some reports indicate a slowing in growth from earlier in the year. Indeed, the IHS Markit Flash U.S. Manufacturing PMI eased in June to its slowest growth rate since September. It was the fifth consecutive monthly decline, down from the fastest growth rate in nearly two years in January. Nonetheless, we continue to see modest growth overall in the sector nationally for new orders, output and exports, and hiring picked up somewhat in June. In addition, respondents continued to be mostly optimistic about future production, which was encouraging.

Regionally, the Kansas City Federal Reserve Bank reported that manufacturing activity expanded for the seventh straight month, with those completing the survey citing notable improvements in activity relative to this time last year. Several of the key indicators shifted strongly higher in June, including shipments, production, employment and the average workweek. More importantly, manufacturers in the district continued to be very upbeat about the next six months, with at least half expecting higher levels of sales, production and shipments moving forward.

Meanwhile, new manufacturing orders were one of the bright spots for the Conference Board’s Leading Economic Index (LEI), which increased 0.3 percent in May. Other positive contributions in May came from average weekly unemployment claims, consumer confidence, stock prices, the interest rate spread and overall lending conditions. In contrast, reduced building permits subtracted from the headline LEI in May for the second consecutive month on softer-than-desired activity in the residential market. While the Census Bureau’s housing starts and permits figures were disappointing in May, existing and new home sales were higher in data released last week, with both rebounding somewhat from weaker numbers in April.

In general, I continue to expect better housing starts in the second half of 2017, likely hitting 1.25 million units at the annual rate. However, one challenge in the real estate market has been inventories of houses for sale, particularly for existing homes. As National Association of Realtors Chief Economist Lawrence Yun has said, homes are selling “extremely fast” with few options from which to choose. It is definitely a seller’s market right now, pushing up median prices.

Manufacturing activity will once again be in the spotlight this week with a number of key economic releases. It is hoped the Dallas and Richmond Federal Reserve Banks will reflect expanding levels of demand once again in their respective June surveys. The Census Bureau will report on May durable goods orders and shipments. In addition, consumers will come into focus with new figures on personal spending and confidence, especially in light of disappointing retail sales figures in May. Other highlights this week include preliminary data on international trade in goods and a second revision for first quarter real GDP growth.

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