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NAM: Monday Economic Report

The latest Beige Book, which summarizes economic conditions in the Federal Reserve’s 12 districts, cited modest expansions in manufacturing activity nationally. There were general improvements in the sector across most regions of the country, with notable softness in the automotive segment. Consumer and capital spending were also stronger, with the labor market tightening.

New factory orders fell for the third time in the past four months, down 3.3 percent in July. New orders of manufactured goods declined from $482.2 billion in June to $466.4 billion in July, a level not far from May’s $467.1 billion figure. The bulk of July’s decrease (and June’s gain) stemmed from the nondefense aircraft and parts sector. Those sales are highly volatile from month to month, with the June total centering around the International Paris Air Show. Excluding transportation, new orders were up 0.5 percent from $390.4 billion in June to $392.2 billion in July. Overall, new factory orders—which have struggled mightily over the past couple years—have been much stronger over the past 12 months than the headline number might have suggested, up 4.9 percent since July 2016. Excluding transportation, the gains were even larger, up 5.7 percent year-over-year.

Meanwhile, manufacturing labor productivity grew modestly by 2.9 percent in the second quarter, rebounding from the 0.2 percent gain seen in the first quarter. This was revised up slightly from an earlier estimate of 2.5 percent, and it was the third straight quarterly increase in productivity in the sector, improving from two consecutive declines in mid-2016. The latest data indicate some progress, but the longer-term trend remains a concern. Labor productivity in the sector has been essentially stagnant since the Great Recession, but through the first half of 2017, the annual rate was 1.5 percent. Still, that is well below the 5.2 percent pace for manufacturing output per worker experienced from 2002 to 2008.

A number of releases this week may offer signs of continued expansion in the manufacturing sector. There will be a report on industrial production, which was softer for manufacturers than desired in July, especially for motor vehicles and other durable goods. It is hoped the August figures for manufacturing output rebounded. It is also hoped the September survey from the New York Federal Reserve Bank will show continued progress in activity. Also coming this week are the latest figures on consumer confidence, consumer and producer prices, job openings, retail sales, small business optimism and state employment.

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