NAM: Monday Economic Report
In the latest NAM Manufacturers’ Outlook Survey, 67.9 percent of manufacturing respondents felt either somewhat or very positive about their own company’s outlook in the third quarter. This was down from 89.5 percent and 79.8 percent who said the same thing in the first and second quarters, respectively, and it was the lowest reading since the third quarter of 2016.
The inability to attract and retain workers remained respondents’ top concern for the eighth consecutive survey, noted by almost 70 percent of respondents. Underscoring the severity of this challenge, 78.7 percent of respondents said they have open positions they are struggling to fill, and roughly one-third were forced to turn down business opportunities due to their inability to find sufficient talent. Trade uncertainties were the second most mentioned concern facing manufacturers, with 63.4 percent of respondents reporting it as the top company issue.
Other reports also reflected soft manufacturing activity. For instance, surveys from the Kansas City and Richmond Federal Reserve Banks showed contracting activity in their districts in September, even as manufacturers continued to be positive about the next six months.
Nationally, the IHS Markit Flash U.S. Manufacturing PMI improved in September, rising after expanding at the slowest pace since September 2009 in the August data. The headline index increased from 50.3 in August to 51.0 in September, according to preliminary data, led by a rebound in new orders, which had contracted in the previous survey.
In contrast to better performance in the U.S., the IHS Markit Flash Eurozone Manufacturing PMI was 45.6 in September, down from 47.0 in August and the weakest reading since October 2012. This was led by severe challenges in Germany, which has contracted in every month so far in 2019, falling from 43.5 to 41.4, the lowest since June 2009.
New durable goods orders edged up 0.2 percent in August, slowing after a solid gain of 2.0 percent in July. With transportation equipment excluded, new orders rose 0.5 percent in August.
Overall, global economic headwinds and trade uncertainties continue to challenge growth in the manufacturing sector, with new durable goods orders down 3.0 percent over the past 12 months but with a slight increase of 0.2 percent with transportation equipment excluded.
At the same time, new orders for core capital goods (or nondefense capital goods excluding aircraft)—a proxy for capital spending in the U.S. economy—fell 0.2 percent in August, and on a year-over-year basis, this figure decreased 0.3 percent.
Personal income rose 0.4 percent in August, strengthening from the 0.1 percent gain in July. Over the past 12 months, personal income has risen 4.6 percent. In addition, manufacturing wages and salaries increased to $923.6 billion in August, up a solid 4.3 percent year-over-year.>
Meanwhile, personal consumption expenditures edged up 0.1 percent in August, slowing after jumping 0.5 percent in July. Personal spending has increased a modest 3.7 percent over the past 12 months. The saving rate rose from 7.8 percent in July to 8.1 percent in August. The two measures of consumer confidence provided mixed data in September, with the University of Michigan report improving from August but the Conference Board noting some weakening data.
The PCE deflator was flat in August, easing from the 0.2 percent gain in July and the slowest pace since January. Excluding food and energy, core prices edged up 0.1 percent in August. Over the past 12 months, the PCE deflator has risen 1.4 percent, the same pace as in July, but down from 2.3 percent year-over-year in August 2018. For eight consecutive months, or in every month so far in 2019, this measure has remained below the Federal Reserve’s stated goal of 2 percent core inflation.
As such, the pricing data should provide some comfort to the Federal Open Market Committee, as it allows participants the luxury of being more “dovish” in setting monetary policy. The Federal Reserve has reduced short-term rates at both of the past two meetings, and while some are calling for another federal funds rate reduction at the Oct. 29–30 meeting, it is clear that there is no consensus on the FOMC yet for such a move.
The U.S. economy grew 2.0 percent at the annual rate in the second quarter, consistent with the Bureau of Economic Analysis’ earlier estimate but down from 3.1 percent growth in the first quarter. Moving forward, I estimate 2.3 percent growth at the annual rate in the third quarter, with the same pace for 2019 as a whole. The outlook is for 1.8 percent growth in 2020, but with strong cases for both upside and downside risks to that figure, at least for now.