NAM: Monday Economic Report
In the latest NAM Manufacturers’ Outlook Survey for the third quarter, 87.5% of respondents felt either somewhat or very positive about their company outlook, down from 90.1% in the second quarter. The data are consistent with solid growth in manufacturing activity, but with some easing from more rapid paces in the second quarter, when the outlook had registered the best reading in nearly three years and some measures had reached record highs.
At the same time, the labor market remains tight, with respondents predicting employment and wage growth to rise at the fastest rates in Outlook Survey history. Respondents also anticipate capital spending to increase by the most since the second quarter of 2018. Workforce shortages were cited as the largest downside risk to the economic outlook, followed by supply chain disruptions, increased cost pressures and rising COVID-19 cases.
Rising raw material costs once again topped the list of primary business challenges in the third quarter, cited by 86.4% of respondents. Other top challenges in the third quarter include the inability to attract and retain a quality workforce, supply chain challenges, transportation and logistics costs and rising health care and insurance costs.
Manufacturing job openings jumped to another record high, from 880,000 in June to 889,000 in July. In the larger economy, nonfarm business job openings rose from 10,185,000 in June to 10,934,000 in July, a new record.
In July, there were 8,702,000 unemployed Americans, which translates to 0.80 unemployed workers for every one job opening in the U.S. economy. That speaks to the tightness of the labor market, with more job openings than people looking for work.
Initial unemployment claims fell to another post-pandemic low, down from 345,000 for the week ending Aug. 28 to 310,000 for the week ending Sept. 4.
Producer prices for final demand goods and services rose 0.7% in August, the slowest monthly gain since May but still a strong figure. Over the past 12 months, producer prices for final demand goods and services jumped 8.3%, the biggest increase on record. Meanwhile, core producer prices increased a record 6.3% year-over-year.
While raw material costs are likely to stabilize somewhat over the coming months and into the new year, there will also likely be some pricing pressures that will not abate, particularly given the rebounding of the economy.
That has put pressure on the Federal Reserve. In my view, the Federal Open Market Committee will start the process of tapering asset purchases at its next meeting on Sept. 21–22, with the federal funds rate edging higher by mid-2022. Even with those moves, monetary policy will continue to be highly stimulative for the foreseeable future.