NAM: Monday Economic Report

  • Manufacturers added 32,000 workers in December, the best reading of the year and continuing a trend of solid job growth in the sector. Manufacturing firms have generated 284,000 net new employees over the past 12 months, or nearly 24,000 workers per month. In addition, average weekly earnings for nonsupervisory and production workers in manufacturing have increased 3.3 percent over the past 12 months, continuing an upward appreciation in wages due to the tight labor market.
  • Nonfarm payroll employment rose a very robust 312,000 in December, the strongest monthly gain since February and well above the consensus estimate of 180,000. At the same time, the unemployment rate increased to 3.9 percent, largely on more Americans entering the labor market, an encouraging sign.
  • Overall, businesses remain committed to adding to their workforce on strength in the overall outlook despite recent volatility in financial markets and uncertainties about the global economy and trade. Note that the inability to attract and retain workers remains manufacturers’ top problem, with job openings in the sector at an all-time high. (There will be an update on job openings on January 8, but it is likely to continue to show there are more postings than people who are actively looking for work.)
  • The positive employment news stands in contrast to signs that the global economy is slowing. The ISM® Manufacturing Purchasing Managers’ Index® provided some evidence of this, weakening to the slowest pace since November 2016, with survey respondents citing global growth and trade uncertainties as concerns.
  • The good news—such as it is—is that manufacturing activity in the ISM® release continued to expand in the latest data, but sentiment has clearly softened as manufacturers digest volatilities in the marketplace. Financial markets, for instance, worry about global growth in light of weaknesses in China, including warnings about corporate earnings and contracting manufacturing activity for the first time since May 2017. (For more on international conditions, see the latest Global Manufacturing Economic Update, which will be out on January 10.)
  • Despite those worries, it is important to keep it all in perspective. For the most part, the forecasts for this year call for slowing, not declining, growth in real GDP, and while the risk of a downturn rises as the year progresses, a recession is not necessarily in the cards for 2019. For instance, I would peg the risk of a recession over the next 12 months at around 20 percent, increasing to about 40 percent by year’s end and into 2020. Those chances are not insignificant, but they suggest that a recession is not imminent.
  • The U.S. economy will likely have expanded by 2.9 percent in 2018, the fastest pace since 2005, according to my estimates, with a fourth quarter reading of 2.6 percent. In 2019, the forecast is for 2.5 percent growth, but downside risks could push that outlook somewhat lower.