NAM: Monday Economic Report
Manufacturers continued to report solid growth in activity, with the sector remaining one of the bright spots in the economy. In the latest Manufacturers’ Outlook Survey from the NAM, 89.5 percent of respondents felt either somewhat or very upbeat about their company’s outlook, up from 88.7 percent in the fourth quarter of 2018. Over the past nine quarters, the headline index has averaged a very robust 91.8 percent, reflecting highly elevated levels of optimism among respondents.
That said, manufacturers continue to report challenges with finding talent, with 71.3 percent citing workforce challenges as their top concern for the sixth consecutive survey. In addition to attracting and retaining a quality workforce, other major concerns in the latest survey included rising health care and insurance costs (56.5 percent), increased raw material costs (55.8 percent), trade uncertainties (52.6 percent) and transportation and logistics costs (34.3 percent).
Nonetheless, manufacturers added just 4,000 workers in February, the slowest monthly pace of job growth since July 2017. The overall nonfarm payroll data were also disappointing, off from a solid increase of 311,000 in January to 20,000 in February. Weather might have impacted employment growth negatively in the month. I would not be surprised to see an upward revision in the next release, or at a minimum, a sharp rebound. With that in mind, it is important to not read too much into the data, as the labor market continues to be strong overall.
The U.S. economy has generated a robust 209,080 jobs on average each month over the past 12 months, with manufacturers hiring more than 20,000 workers per month on average since February 2017. The unemployment rate dropped from 4.0 percent in January to 3.8 percent in February, continuing to be near 50-year lows. The so-called “real unemployment rate” declined from 8.1 percent to 7.3 percent in this report, a rate not seen since March 2001.
New housing starts bounced back in January from a disappointing December, up to 1,230,000 units at the annual rate. Encouragingly, single-family activity rose to an eight-month high, likely boosted by improved mortgage rates and stronger economic data. With that said, affordability and workforce issues continue to challenge the housing market, with starts down 7.8 percent year-over-year.
Encouragingly, housing permits—a proxy of future activity—remain promising, rising to an annualized 1,345,000 units in January, a nine-month high. This provides some hope that residential construction will return to 1.3 million units or more in the coming months. In addition, new home sales were also stronger in December, bouncing back from nearly a three-year low in October.
U.S.-manufactured goods exports rose 5.6 percent in 2018 to just shy of $1.4 trillion, using new seasonally adjusted data from TradeStats Express. As such, last year’s export pace was not far from the all-time high recorded in 2014, which was just more than $1.4 trillion. That suggests manufacturing exports grew strongly last year, building on the 4.7 percent gain in 2017, despite some headwinds from lingering trade policy uncertainties and a stronger U.S. dollar.
Yet, the U.S. trade deficit rose to the highest level since October 2008, up from $50.30 billion in November to $59.77 billion in December. In addition, the goods trade balance jumped to a new all-time high, at $81.54 billion.
Manufacturing labor productivity grew 2.0 percent in the fourth quarter, expanding for the third straight quarter. Productivity in the sector rose 0.8 percent in 2018, or slightly above the average over the past three years (0.6 percent).