NAM: Monday Economic Report

Manufacturing activity continued to expand solidly, even with the Institute for Supply Management’s Manufacturing Purchasing Managers’ Index edging down from 59.3 in December to 59.1 in January. New orders increased at their fastest pace in 13 years in December, but that expansion slowed a little in January, down from 67.4 to 65.4. Nonetheless, it was the eighth consecutive month that the sales measure exceeded 60, which would signify robust growth in demand overall. International growth helped fuel that demand, with exports (up from 57.6 to 59.8) expanding at their best pace since April 2011. Respondents in the sample comments tended to echo that finding, citing a brightened outlook and stronger U.S. and global sales growth. Among other things, tax reform and other pro-growth measures have helped boost confidence among business leaders in the sector.

Other data on manufacturing activity were also encouraging. For instance, new factory orders rose by 1.7 percent in December. For durable goods firms, much of the increase stemmed from sharply higher sales of defense and nondefense aircraft and parts, which can be highly volatile from month to month. Excluding transportation equipment, new orders of manufactured goods were up 0.7 percent in December. Overall, new factory orders—which struggled in 2015 and 2016—trended in the right direction in 2017. Indeed, sales of manufactured goods soared 8.4 percent since December 2016, or 6.6 percent with transportation equipment sales excluded. At the same time, the Dallas Federal Reserve Bank’s composite index of general business conditions expanded in January at its fastest rate since December 2005, with the Texas economy continuing to rebound with robust growth and a very positive outlook for the next six months.

On the labor front, manufacturers added 15,000 workers in January, extending the strong hiring gains in the sector seen throughout much of 2017. Manufacturing employment rose by 15,750 workers per month on average in 2017—quite a turnaround from the sluggish job growth experienced in 2016. Business leaders have told us that recruiting new workers is their primary business concern right now. Along those lines, average weekly earnings for production and nonsupervisory employees in manufacturing have risen 2.8 percent over the past 12 months. Since the end of the Great Recession, manufacturing employment has risen by 1,102,000 workers, with 12.55 million employees in the sector in this report. That number represents the highest level of manufacturing employment since January 2009.

In terms of the larger economy, nonfarm payrolls were up by 200,000 workers in January, or slightly higher than the consensus estimate of around 180,000. On average in 2017, the U.S. economy added 181,083 workers on net each month. The unemployment rate was unchanged at 4.1 percent for the fourth straight month, continuing to be its lowest level since December 2000.

Nonetheless, the latest consumer confidence data were mixed. The Conference Board’s measure of consumer sentiment ticked higher in January and remained not far from the 17-year high recorded in November, boosted by improved perceptions about opportunities in the job market. In contrast, the University of Michigan and Thomson Reuters reported that confidence pulled slightly lower—while remaining quite elevated—in January. Although respondents were more upbeat about rising stock prices and their incomes, they were also uncertain about the impact of tax reform and anticipated that prices would pick up in the coming months.

For their part, Americans have continued opening their pocketbooks, making personal consumption expenditures one of the bright spots in the U.S. economy. Personal spending was up 0.4 percent in December, with a rather robust 4.6 percent growth year-over-year. In addition, the savings rate fell to its lowest rate since September 2005, down to 2.4 percent in December. The savings rate has trended lower since peaking at 4.1 percent in February. It is yet another illustration that Americans have accelerated their purchasing—something that helped increase holiday spending and provide a significant boost to real GDP growth in the fourth quarter.

After a few busy weeks featuring releases of numerous economic data reports, this week will see just a handful of releases, including updates on consumer credit, international trade and job openings. In addition, the NAM will publish its Global Manufacturing Economic Update on Thursday.

Chad Moutray, Ph.D., CBE

Chief Economist

National Association of Manufacturers