NAM: Monday Economic Report
The Institute for Supply Management’s Manufacturing Purchasing Managers’ Index grew at the slowest pace since October 2016, with the headline index declining from 52.8 in April to 52.1 in May. Trade concerns were front and center in respondents’ minds, according to the sample comments. With that said, the sector has now expanded for 33 straight months, albeit with more softening, and the pace of new orders improved in the May survey.
Weaker U.S. and global growth has impacted overall hiring negatively. Manufacturing employment rose by 3,000 workers in May, with the sector’s pace of job growth remaining more sluggish than desired for the fourth straight month. Indeed, manufacturers have added just 13,000 employees since February–a stark contrast to the 93,000 workers created in the sector over the four prior months.
With that said, there were 12,839,000 employees in manufacturing in May, the most since December 2008. In addition, firms continue to cite a difficulty in obtaining talent as a top concern, with elevated job openings data. It is hoped this would signal stronger job growth moving forward.
In the larger economy, nonfarm payrolls increased by just 75,000 workers in May, and there were sizable downward revisions in the March and April data. Still, the unemployment rate stayed at 3.6 percent, remaining the lowest rate since December 1969. As such, the labor market remains tight overall despite some softness in the May data. Moreover, the so-called “real unemployment rate” fell to 7.1 percent, a rate not seen since December 2000.
New orders for manufactured goods fell 0.8 percent in April, but increased 0.3 percent with transportation equipment excluded. Overall, factory orders have risen just 1.0 percent over the past 12 months, highlighting some flattening in sales growth for the sector in recent months. In addition, new orders for core capital goods (or nondefense capital goods excluding aircraft)–a proxy for capital spending in the U.S. economy–decreased 1.0 percent in April, and over the past 12 months, core capital goods spending has increased 1.2 percent.
Private manufacturing construction spending fell 7.2 percent in the latest data, down from $73.59 billion at the annual rate in March to $68.33 billion in April. As such, construction activity plummeted from the best reading since November 2016 to a three-month low. Nonetheless, the value of construction put in place in manufacturing has jumped 11.5 percent from one year ago.
The U.S. trade deficit edged slightly lower in April, with the decline in goods imports outpacing the decrease in goods exports for the month. More worrisome perhaps, U.S.-manufactured goods exports have decreased 1.18 percent year to date in 2019 relative to the first four months of 2018, highlighting weaker international demand and a turnaround from better data in the past two years.
The Federal Open Market Committee meets June 18-19, and the softer-than-desired jobs data (along with weaker growth in other indicators) increase the likelihood of the Federal Reserve cutting interest rates, either at that meeting or the next one, which will be July 30-31. Pricing pressures have decelerated in recent months, including the closely watched PCE deflator, which allow participants the luxury of being more “dovish” in setting monetary policy.