NAM: Monday Economic Report

The Institute for Supply Management (ISM) reported that manufacturing activity continued to expand solidly in March, even as it pulled back from the best reading since May 2004 in February. The ISM Manufacturing Purchasing Managers’ Index declined to 59.3 in March, but the data continue to indicate strength in the sector overall. Indeed, the indices for new orders and production have exceeded 60—a threshold suggesting robust expansions for both measures—since at least June 2017. Exports and employment growth also remain quite healthy despite some deceleration in the March figures. Exports, for instance, had expanded at the fastest rate since April 2011 in February, with international sales helping to fuel stronger overall demand. Indeed, U.S.-manufactured goods exports have risen roughly 5 percent in January and February relative to the same two-month period last year.

With a brighter economic outlook, hiring has accelerated. Manufacturers added 22,000 workers in March, extending the 32,000 gain in employment in February. It was the sixth consecutive month with robust hiring growth in the sector, averaging 27,167 per month over that time frame. As such, the latest jobs numbers confirm that the labor market has tightened significantly, with manufacturers increasing employment by a rather robust 18,733 per month on average since the end of 2016. That is quite a turnaround from the sluggish job growth in 2016, and it is a sign that firms have continued to accelerate their hiring as the economic outlook has strengthened and demand and production have improved considerably.

Along those lines, average weekly earnings for production and nonsupervisory employees in the manufacturing sector edged down to $901.39 in March. However, that translated into a whopping 4.1 percent increase over the past 12 months, up from $865.26 in March 2017, which further illustrates the strength of the labor market right now. Since the end of the Great Recession, manufacturing employment has risen by 1,179,000 workers, with 12.63 million employees in the sector in this report. That is the highest level of manufacturing employment since December 2008.

Despite the healthy increase in employment in manufacturing, nonfarm payrolls increased just 103,000 in March, well below the consensus estimate of around 190,000. This represented a notable easing from February’s solid gain of 326,000 workers. Weather might have been a factor in the slower activity in March. Meanwhile, the unemployment rate remained at 4.1 percent for the sixth straight month, continuing to be the lowest level since December 2000.

Meanwhile, other measures also reflected solid growth in the manufacturing sector right now. For example, new factory orders rose 1.2 percent in February, bouncing back from a decline of 1.3 percent in January. Much of that swing in activity stemmed from a sizable increase in aircraft orders, which can be highly volatile from month to month. Excluding transportation equipment, new orders for manufactured goods inched up 0.1 percent in February. Overall, new factory orders have trended sharply higher over the past year. Along those lines, sales of manufactured goods have soared 7.1 percent since February 2017, or 6.4 percent excluding transportation equipment sales. Core capital goods—or nondefense capital goods excluding aircraft—have jumped 7.7 percent over the past 12 months.

Finally, private manufacturing construction spending rose 1.2 percent in February, rising for the sixth straight month. The value of construction put in place in the sector increased to $66.84 billion in February. Since falling to $60.92 billion in August, private manufacturing construction has started to trend higher, which would be consistent with the recent uptick in economic activity and a stronger overall outlook. With that said, construction in the sector has drifted lower since achieving the all-time high of $82.13 billion in May 2015. Along those lines, manufacturing construction has declined 5.6 percent year-over-year. For now, however, the good news is that the sector appears to have turned a corner, moving in the right direction.

This week, there will be new readings on consumer and producer inflation. In the beforementioned ISM survey (and in other recent sentiment releases), prices for raw materials have remained highly elevated, with the ISM’s measure at a level not seen since April 2011. This reflects a rebound in some commodity costs, even as overall pricing pressures continue to be largely under control, at least for now. Other highlights for the week include updates on consumer confidence, job openings and small business optimism.

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