NAM: Monday Economic Report

  • After four months of disappointing data, there were signs of stabilization in the latest manufacturing production report. Output in the sector increased 0.2 percent in May after falling 0.5 percent in April. Yet, the data also reflect the toll from slowing global activity year to date. In fact, manufacturing production has risen just 0.7 percent over the past 12 months.
  • Looking ahead, the current forecast is for manufacturing production (NAICS) to rise 1.2 percent in 2019, down from 2.7 percent in 2018. This would suggest some improvement in output data in the coming months, but at a pace that remains somewhat soft.
  • Job openings in the manufacturing sector jumped from 461,000 in March to 501,000 in April, matching the all-time high in August and November 2018. This suggests that manufacturers are continuing to look for talent, even as other measures of hiring have slowed recently. On that score, business leaders in the sector remain challenged in their ability to attract and retain workers.
  • Meanwhile, there were 7,449,000 nonfarm job openings in April, which continued to be close to the all-time high in January (7,625,000). In addition, there continued to be more job openings in the U.S. economy than the number of people looking for work for the 14th straight month. That suggests there were roughly 1.6 million more job postings than there were unemployed people to fill them in April.
  • The National Federation of Independent Business reported that the Small Business Optimism Index rose to the best reading since October, up from 103.5 in April to 105.0 in May. It was the fourth consecutive monthly increase in sentiment, and despite softening from August’s all-time high (108.8), small businesses remain upbeat overall. Workforce issues remained the top “single most important problem,” with job openings near an all-time high for small firms.
  • Retail sales strengthened in May, up 0.5 percent, and more importantly, the April data were revised from a decline of 0.2 percent to a gain of 0.3 percent. Over the past 12 months, retail sales have risen 3.2 percent. Moving forward, retail sales are seen expanding a modest 3.0 percent in 2019, down from 4.7 percent in 2018.
  • Consumer and producer prices inched up in May, but overall, core inflation has slowed from the more elevated pace seen last summer and autumn. That has been welcome news for manufacturers, but it also provides flexibility for the Federal Reserve, especially as it considers possible rate cuts in the coming months.
  • Along those lines, the Federal Open Market Committee could cut short-term rates at its June 18-19 meeting, or it could wait until it receives more data between now and its next meeting on July 30-31. Market analysts will parse the phrasing of the Federal Reserve’s statement for clues on the economic outlook and on possible future actions.