NAM: Monday Economic Report
With the beginning of the second half of 2020, the data last week continued to show a bounce back in economic activity in May and June after sharp declines in the spring months due to COVID-19 and the global recession. These data represent an encouraging sign, and yet, we must also note a couple of caveats.
The depth of the downturn was severe—either the worst since the Great Recession or on record, depending on the indicator. These conditions will make it more difficult to get back to prerecession levels.
We have experienced spikes in COVID-19 cases recently, which could impact the pace of reopenings for many businesses and consumers’ willingness to resume “normal” activities and spending. These factors also could dampen growth in forthcoming data.
Highlights from the data released last week:
The ISM® Manufacturing Purchasing Managers’ Index® reported that manufacturing activity rebounded in June, expanding at the fastest pace since April 2019. The improvements in June were led by the largest monthly jump in new orders in the survey’s history, as well as the biggest monthly growth in production since August 1952. Exports and hiring declined at slower rates.
After declining by 11% and 13.5% in March and April, respectively, new orders for manufactured goods rose by 8% in May. On a year-over-year basis, new orders in the manufacturing sector have fallen by a sharp 15.8% since May 2019. With transportation equipment excluded, factory sales have fallen 11% year-over-year.
New orders for core capital goods—a proxy for capital spending in the U.S. economy—rose 1.6% in May, but with a decline of 4.5% over the past 12 months.
Consistent with other regional surveys, the Dallas Federal Reserve Bank found that manufacturing activity stabilized, improving from -74.0 in April to -49.2 in May to -6.1 in June. Manufacturers in the district expressed cautious optimism in their outlook in June.
The U.S. economy added a very robust 4,800,000 nonfarm payroll workers in June, extending the gain of 2,699,000 employees added in May. Even with sizable job growth in the past two months, nonfarm payrolls have fallen by 14,661,000 since February. The unemployment rate declined from 13.3% in May to 11.1% in June.
In June, manufacturers added 356,000 workers, building on the increase of 250,000 employees seen in May. A sizable rebound in motor vehicles and parts, which added 195,800 workers in June, led all segments. Yet, the sector continues to be down 757,000 workers since February.
The current outlook is for manufacturing employment to bounce back to roughly 12,450,000 million workers by year’s end, with an unemployment rate around 9%.
The Conference Board said that consumer confidence rose for the second straight month, recovering some of the sentiment seen after dropping in April to its lowest level in nearly six years. Americans expressed more optimism in their perceptions of income and labor markets, albeit still at weaker than desired levels.
Private manufacturing construction spending dropped 4.1% to the slowest pace since July 2018. On a year-over-year basis, private construction spending among manufacturers has decreased 10.8% since May 2019.
Led by sharp reductions in trade volumes, the U.S. trade deficit rose from $49.76 billion in April to $54.60 billion in May, its highest point since December 2018. Goods exports dropped to a level not seen since August 2009 and more than offset the decrease in goods imports, which fell to the weakest pace since September 2010.
In non-seasonally adjusted data, U.S.-manufactured goods exports totaled $396.58 billion though the first five months of 2020, dropping 15.74% from $470.69 billion for the same time frame in 2019.