NAM: Monday Economic Report
Several reports last week highlighted weaknesses in the U.S. and global manufacturing economies, which have been impacted by the ratcheting up in trade uncertainties.
The Institute for Supply Management® reported that manufacturing activity contracted for the first time in three years. The composite index dropped from 51.2 in July to 49.1 in August, pulled lower by declining new orders, exports, production and employment. New orders contracted for the first time since December 2015, and exports plummeted to the lowest reading since April 2009.
Manufacturing labor productivity fell 2.2 percent at the annual rate in the second quarter, the first decline since the first quarter of 2018 and pulled lower by reduced output for the second straight quarter. In contrast, nonfarm business labor productivity rose 2.3 percent at the annual rate in the second quarter, extending the 3.5 percent gain in the first quarter.
New orders for manufactured goods rose 1.4 percent in July, extending the 0.5 percent gain in June. Excluding transportation equipment (which includes highly volatile aircraft sales), factory orders increased 0.3 percent in July. Despite the strong headline number, new factory orders have risen just 0.4 percent since July 2018, but down 0.2 percent year-over-year with transportation equipment sales excluded.
Along those lines, new orders for core capital goods—a proxy for capital spending in the U.S. economy—increased 0.2 percent in July. Core capital goods orders have fallen 0.6 percent since July 2018, the first negative year-over-year reading since November 2016.
While the U.S. trade deficit pulled somewhat lower for the second straight month in July, U.S.-manufactured goods exports have fallen 2.52 percent year to date in 2019 relative to the same time frame in 2018.
Manufacturing employment rose by just 3,000 workers in August, with downward revisions for the prior two months. Overall, manufacturing job growth has slowed considerably year to date, with the sector averaging 5,500 new workers per month so far in 2019 relative to the more robust average of almost 22,000 per month in 2018.
With that said, there were 12,853,000 employees in manufacturing in August, the most since November 2008. Manufacturers have added 1.4 million workers to the sector since the Great Recession, and firms continue to cite difficulty in obtaining talent as a top concern, with record-high levels of job openings. Meanwhile, average hourly earnings for production and nonsupervisory workers have risen 3.2 percent year-over-year. In the larger economy, nonfarm payrolls increased by 130,000 in August, a disappointing reading, with the unemployment rate remaining near 50-year lows at 3.7 percent.