NAM: Monday Economic Report
In the second quarter of 2019, about four out of five manufacturing respondents said that they were either somewhat or very optimistic about their own company’s outlook. While that was down from nearly 90 percent who said the same thing in the first quarter, it continues to reflect a mostly optimistic sentiment in the sector. In the nearly 21-year history of the survey, the average is 75.0 percent positive. Interestingly, small manufacturers were more optimistic about their own company’s outlook than their larger counterparts.
The inability to attract and retain workers remained respondents’ top concern for the seventh consecutive survey; 68.8 percent of respondents identified that issue as their top concern. Trade uncertainties were the second-most-mentioned concern facing manufacturers; they were cited as a top company issue by 56.0 percent of those completing the survey. More than four-fifths of respondents said passage of the United States–Mexico–Canada Agreement was important for their company.
Other economic data also reflect slower growth in the manufacturing sector. For instance, the IHS Markit Flash Manufacturing PMI dropped to 50.1 in June, its weakest pace since September 2009 and one that represents an ever-so-slight expansion. This was similar to the responses in the Philadelphia Federal Reserve Bank’s June survey, which found that activity expanded for the fourth straight month, but only barely. In contrast, the Empire State Manufacturing Survey contracted for the first time since October 2016, with declining new orders and hiring in the New York Fed’s district. Yet, each of these releases continue to show an upbeat outlook for the next six months.
Meanwhile, there was mixed news in the housing market. New residential construction declined 0.9 percent, down from an annualized 1,281,000 units in April to 1,269,000 units in May. More importantly, these data reflect ongoing weaknesses for single-family activity, which fell from 876,000 units to 820,000 units for the month. This suggests that the housing market remains softer than desired despite reduced mortgage rates. On that note, the average 30-year mortgage rate was 3.84 percent last week, down from 4.94 percent seven months ago.
For their part, builders feel upbeat about sales over the next six months despite affordability and workforce challenges, largely on expectations that construction will rebound in the coming months. Along those lines, housing permits—a proxy of future activity—edged up 0.3 percent in May, hovering close to the 1.3-million-unit threshold that remains a psychological barrier.
Moreover, existing home sales rose 2.5 percent, up from an annualized 5.21 million units in April to 5.34 million units in May, a three-month high. Since May 2018, however, existing home sales have fallen 1.1 percent, down from 5.40 million units one year ago.
The Federal Open Market Committee left short-term interest rates unchanged at the conclusion of its June 18–19 meeting. However, it signaled that a rate cut might be forthcoming, with the market anticipating such a move at the July 30–31 meeting. The Fed also provided economic projections, which seem to indicate the willingness of many members to cut the federal funds rate twice in 2019.
In terms of the economy, the FOMC noted “solid” labor market growth, with the unemployment rate still near 50-year lows. Consumer spending had, in its estimation, rebounded, but business investment remained softer than desired.
Editor’s Note:I am excited to announce that Jim Hoke, a senior global economist at Deere & Company, will be the guest author for the Monday Economic Report on July 1. This will give us an opportunity to gain insights from a well-respected industrial economist with on-the-ground expertise in the sector.