NAM: Monday Economic Report
Manufacturing employment rose by 4,000 workers in April, bouncing back from being unchanged in March. Despite the positive reading, one cannot help but be disappointed by the softer job growth over the past three months, but it also coincides with weaker-than-desired demand and production figures. Moving forward, a pickup in monthly employment growth would be anticipated, especially given the rebounds experienced in several other economic indicators.
Still, even with some recent softness, manufacturers have added 17,000 workers per month over the past 12 months, a solid rate overall, and there were 12,838,000 employees in the sector in April, the most since December 2008.
Nonfarm payrolls increased by a stronger-than-anticipated 263,000 workers in April. Overall, the labor market remains extremely tight, with the unemployment rate falling from 3.8 percent in March to 3.6 percent in April, the lowest rate since December 1969.
Private manufacturing wages and salaries jumped 0.9 percent in the first quarter. That translated into 2.9 percent growth over the past 12 months, the fastest year-over-year pace of growth since the second quarter of 2003. For all private-sector employees, wages and salaries rose 0.7 percent in the first quarter, the same as the fourth quarter, or 3.0 percent year-over-year.
The Institute for Supply Management® reported that manufacturing activity expanded at the slowest pace since October 2016 in April, with softening new orders, production and employment for the month. Exports contracted, however, for the first time since February 2016, which likely weakened total demand. The sample comments indicate that trade anxieties, especially related to the Mexican border and Brexit, were front and center in respondents’ minds.
New orders for manufactured goods rose 1.9 percent in March, bouncing back from a decrease of 0.3 percent in February. Excluding transportation equipment, factory orders increased 0.8 percent in March, up from 0.3 percent in February. Overall, factory orders rose a modest 2.0 percent year-over-year. In addition, new orders for core capital goods increased 1.4 percent in March to a new all-time high, which suggests that capital spending growth has been healthy.
Moreover, private manufacturing construction spending increased 2.5 percent to $70.18 billion in March, the best reading for manufacturing construction since December 2016. This is welcome news, consistent with the stronger economic outlook for the sector.
Personal consumption expenditures jumped 0.9 percent in March, soaring after a soft 0.1 percent gain in February. Encouragingly, personal spending has risen 4.4 percent year-over-year, with indications that Americans have once again started to open their pocketbooks. The saving rate is more evidence of this, with the rate plummeting from 7.7 percent in December to 6.5 percent in March.
The PCE deflator rose 0.2 percent in March, the fastest rate of increase since October, largely on higher energy costs, up 3.6 percent. At the same time, the core PCE deflator, which excludes food and energy prices, was flat in March. Over the past 12 months, the PCE deflator has risen 1.5 percent, up from 1.3 percent in February, the slowest year-over-year pace since September 2016. Core inflation inched down from 1.7 percent year-over-year in February to 1.6 percent in March, the lowest reading since January 2018.
Overall, the data continue to suggest that price growth has moderated substantially over the past nine months. This should provide some comfort to the Federal Open Market Committee, as it should allow the committee the luxury of being more “dovish” in setting monetary policy over the coming months in 2019.
Along those lines, the FOMC did not make any changes to monetary policy after its April 30 – May 1 meeting. Most analysts, including me, do not expect the Federal Reserve to raise (or lower) interest rates in 2019. With that said, the FOMC remains data dependent and might change that thinking if economic conditions warrant a change.