NAM: Monday Economic Report

Incoming data suggest that Americans opened their pocketbooks more at year’s end, boding well for holiday spending and for the overall U.S. economy. Indeed, retail sales rose 0.4 percent in December, extending the robust gains from the prior three months. After slowing over the summer months, consumer spending has increased of late. Along those lines, retail sales have risen a healthy 5.4 percent year-over-year in December—a strong figure, even with some easing from the 6.0 percent pace in November. For comparison purposes, the year-over-year rate registered 3.8 percent in December 2016. Excluding automobiles, the pace was even stronger, with retail sales up 6.3 percent over the past 12 months, the best year-over-year rate in five years.

This was consistent with new data on U.S. consumer credit outstanding, which rose 8.8 percent at the annual rate in November. The monthly increase was the largest in 16 years, which no doubt helped to boost consumer spending for the month. Across the past 12 months, consumer credit has increased 5.3 percent. Moreover, revolving credit, which includes credit cards and other credit lines, jumped 13.3 percent in November, extending the healthy 9.9 percent increase in October. This suggests Americans are less cautious in their spending and more willing to use their credit cards for purchases than they were just a few months ago. Meanwhile, nonrevolving credit, which includes auto and student loans, accelerated from 5.3 percent growth in October to 7.2 percent in November. On a year-over-year basis, revolving credit outstanding levels have risen 5.7 percent, while nonrevolving credit outstanding levels have increased 5.2 percent.

Turning to manufacturing, net hiring in the sector remained robust in November, according to the latest Job Openings and Labor Turnover Survey report. Manufacturers hired 355,000 workers in November, up from 344,000 in October and not far from August’s level of 359,000, which was nearly a 10-year high. Hiring increased for durable goods firms in November, up from 198,000 to 209,000, but was unchanged for nondurable goods manufacturers at 146,000. At the same time, total separations—including layoffs, quits and retirements—rose from 309,000 to 327,000. As a result, net hiring (or hires minus separations) declined from 35,000 in October to 28,000 in November. More importantly, however, net hiring has averaged a very healthy 33,600 over the past five months, or 20,100 year to date. Meanwhile, manufacturing job openings decelerated, down from 409,000 in October to 378,000 in November. It was the first reading for job postings below 400,000 since May. Nonetheless, the pace of job openings has picked up overall.

The tight labor market has also been noted by small business owners as a challenge. In the latest survey from the National Federation of Independent Business, the percentage with positions unable to be filled right now inched up from 30 percent to 31 percent in this report. Similarly, capital expenditures activity remained promising, with those investing in capital up from 59 percent to 61 percent, the highest level since May. Those planning to make a capital expenditure over the next three to six months increased from 26 percent to 27 percent. Overall, the Small Business Optimism Index declined from 107.5 in November to 104.9 in December. November’s reading was not far from the record high in July 1983 (108.0). The percentage of respondents suggesting the next three months should be a “good time to expand” remained at 27 percent, and it averaged 23.4 percent in 2017, which was well above the 9.7 percent average in 2016.

Finally, reduced energy costs in December kept inflationary pressures in check. Consumer prices edged up 0.1 percent in December, slowing from the 0.4 percent gain in November, largely on a 1.2 percent decline in energy costs. In a similar way, producer prices for final demand goods and services fell 0.1 percent in December, declining for the first time since August 2016. In December, excluding food and energy, core consumer and producer prices were up 0.3 percent and 0.2 percent, respectively. Pricing pressures accelerated across 2017, in general, but core inflation remains modest overall, at least for now. Over the past 12 months, core consumer and producer costs have risen by 1.8 percent and 2.2 percent, respectively.

This week, the Federal Reserve will release industrial production figures for December. Output in the manufacturing sector rose for the third straight month in November, up 0.2 percent. More importantly, production has increased by 2.4 percent over the past 12 months, matching the rate seen in October, with both being the best year-over-year paces since the best year-over-year rate in July 2014. Likewise, manufacturing capacity utilized inched up from 76.3 percent in October to 76.4 percent in November, a reading not seen since May 2008. We will be looking for continued strength at year’s end for the sector, extending the gains seen in the prior release, and the New York and Philadelphia Federal Reserve Banks will highlight the first readings of activity in their districts for January. Other highlights this week include updates on consumer confidence, GDP by industry and housing starts and permits.

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