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NAM: Monday Economic Report

Financial markets continued to be rocked by concerns about the coronavirus outbreak and the negative impacts on economic activity and the outlook. Global equity markets have pushed further into contraction territory, and investors are flocking to the safety of bonds. As a result, Treasury yields and mortgage rates have hit historic new lows. On the positive side, lower rates have led to sharp increases in mortgage applications and refinancing activity.

The Federal Open Market Committee reduced the target federal funds rate as an emergency response on March 3, suggesting that the Federal Reserve will “use its tools and act as appropriate to support the economy.” The FOMC will meet again March 17–18, and it is expected to reduce interest rates again, perhaps by another 25 basis points.

The ISM® Manufacturing Purchasing Managers’ Index® stagnated in February, with firms “cautious” amid concerns over the global coronavirus outbreak. The headline index fell from 50.9 in January to 50.1 in February, with new orders dropping into contraction territory (49.8) after rebounding in the previous survey. Production and exports continued to expand despite easing somewhat in February.Recent economic data support the view that manufacturing was stabilizing in January and early February before dampening on worries about the coronavirus outbreak, including the construction, employment and factory orders reports released last week.Manufacturing employment rebounded by 15,000 in February after falling by 20,000 in January. Over the past five months, the sector has shed 10,000 workers on net. Job growth moving forward will hinge on developments of the coronavirus outbreak and the impact to global markets. Average hourly earnings for production and nonsupervisory workers in manufacturing have risen 2.8% year-over-year.

Nonfarm payrolls increased by 273,000 in February, matching the solid gain in January. The unemployment rate declined once again to 3.5%, continuing to be the lowest since December 1969. The labor market participation rate was unchanged at 63.4%, remaining the best reading since June 2013.New orders for manufactured goods fell 0.5% in January, but excluding defense sales, orders increased 1.3%. Factory orders excluding transportation rose 1.4% year-over-year. Moreover, new orders for core capital goods (or nondefense capital goods excluding aircraft)—a proxy for capital spending in the U.S. economy—increased 1.1% in January, with 0.7% growth over the past 12 months.


Private manufacturing construction spending rose 1.4% in January. Warmer temperatures and some stabilization in the sector likely helped to prop up activity. Construction activity in the sector has risen 5.0% over the past 12 months, up from $72.78 billion in January 2019.

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