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NAM: Monday Economic Report

As a sign that improvements in the global economy have had a positive impact (especially when combined with a weaker U.S. dollar), export expectations rose once again in the latest data. Respondents predict 1.3 percent growth in exports on average over the next 12 months, up from 1.1 percent in the prior survey and the highest rate in three years. Other data were also encouraging, including sales and production growth that are expected to increase 4.5 percent over the next year. Hiring and capital spending plans were also promising, albeit with both pulling back from multiyear highs in the previous release. Full-time employment in manufacturing is predicted to grow by an average of 2.2 percent over the next 12 months, whereas capital spending was seen rising 2.7 percent over that time frame.

There were also encouraging signs about activity in reports from the DallasKansas City and RichmondFederal Reserve Banks. In each case, manufacturing respondents were the most upbeat that we have seen them since the beginning of the year. Perhaps more importantly, they also remained very positive about the next six months in all three regions. Beyond sentiment surveys, new durable goods ordersincreased 1.7 percent in August, bouncing back somewhat after dropping 6.8 percent in July. The data have been highly volatile over the past three months, mostly on large swings in nondefense aircraft and parts orders. The long-term picture reflects robust growth over the past 12 months. In fact, new durable goods have risen 5.1 percent since August 2016.

Consumer confidence pulled back slightly in September, both in the Conference Board and University of Michigan surveys. Hurricane damage might have been a factor in ebbing some confidence in the data. With that said, Americans continue to be significantly more optimistic today than at this point last year, with improved perceptions about income and labor market growth. Along those lines, personal spendingincreased 0.1 percent in August, slowing from a gain of 0.3 percent in July. Despite some easing, consumers have continued to spend at relatively healthy rates overall. Indeed, personal spending has increased 3.9 percent over the past 12 months. For its part, the saving rate was unchanged at 3.6 percent in August, and it also continued to indicate accelerated spending, down from a saving rate of 4.9 percent one year ago.

Meanwhile, the second revision to real GDP growth for the second quarter changed slightly from its last estimate. The Bureau of Economic Analysis upped its estimate of growth in the U.S. economy in the second quarter from 3.0 percent to 3.1 percent. I continue to anticipate 2.2 percent growth for 2017 as a whole. However, Hurricanes Harvey, Irma and Maria will impact forecasts for the third and fourth quarters. I expect 2.3 percent growth in the third quarter, with weather reducing overall output by at least 0.5 percent in the current quarter. However, fourth-quarter growth will be better than predicted originally as cleanup efforts continue in Florida, Texas and the Caribbean. I estimate 3.0 percent growth in the fourth quarter—at least for now.

Manufacturers have seen robust job growth this year, averaging 17,222 new jobs per month since December. Analysts will be looking for signs of continued strong hiring growth in new employment data out this Friday. Tightness in the labor market has corresponded with improvements in the economic outlook, and manufacturers will get an update on sentiment with September’s figures from the Institute for Supply Management’s Manufacturing Purchasing Managers’ Index released this morning. The survey is expected to show continued strong growth in new orders, output and employment. Other highlights this week include new data on construction spending, factory orders and shipments and international trade.

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