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NAM: Monday Economic Report

  1. According to the Institute for Supply Management® (ISM®), manufacturing activity rebounded strongly in November after falling to a six-month low in October. The indices for new orders and production once again exceeded 60—a threshold suggesting robust expansion—and employment and inventory growth also accelerated. The sample comments continue to cite workforce shortages as a primary concern, mirroring the results of the NAM’s Manufacturers’ Outlook Survey.

  2. Manufacturers added 27,000 workers in November, with 288,000 employees generated in the sector over the past 12 months. That translates into 24,000 workers per month added in the manufacturing sector over the past year—a healthy pace that speaks to the strength in the economy and the overall outlook. The unemployment rate registered 3.7 percent for the third straight month, remaining the lowest since December 1969.

  3. More importantly, average weekly earnings for nonsupervisory and production workers in manufacturing have increased 3.1 percent year-over-year, continuing an upward appreciation in wages in light of the tight labor market. To illustrate that point, the year-over-year rate has averaged 3.4 percent through the first 11 months of 2018, up from the average of 2.4 percent for all of 2017.

  4. U.S.-manufactured goods exports have risen 6.6 percent through the first 10 months of 2018 relative to the pace at the same time frame in 2017. That suggests that manufacturing exports have continued to build on the rebound in international demand that started last year. With that said, the U.S. trade deficit rose to a 10-year high.

  5. New factory orders fell 2.1 percent in October, largely on declines in aircraft and parts sales, which can experience large shifts from month to month. Excluding transportation equipment, factory orders rose 0.3 percent, with the longer-term trend continuing to be encouraging, up 6.9 percent year-over-year.

  6. Financial markets were highly volatile once again, with the Dow Jones Industrial Average down more than 9 percent from the all-time high recorded on October 3. Economic anxieties dominated the headlines, with many analysts focusing on the yield curve. Along those lines, the interest rate spread between 10-year and 2-year Treasury securities dropped to being barely positive. The key is that it has not yet turned negative, and there were some indications by week’s end that monetary policy might be more dovish in 2019 than previously anticipated.

  7. ADP National Employment ReportManufacturers added 4,000 workers in November, according to ADP estimates, the slowest monthly gain since December 2016. In addition, the sector has added roughly 17,000 employees per month over the past 12 months, a healthy pace. Meanwhile, total nonfarm private employment increased by 179,000 in November, slowing from 225,000 workers added in October. The labor market has grown robustly overall, with nearly 205,000 employees generated per month on average over the past 12 months. Ninety-two percent of the net new jobs created in November came from small and medium-sized businesses.

  8. BLS National Employment ReportManufacturers added 27,000 workers in November, with 288,000 employees generated in the sector over the past 12 months. That translates into 24,000 workers per month added in the manufacturing sector over the past year—a healthy pace that speaks to the strength in the economy and the overall outlook. Indeed, there were 12,807,000 manufacturing workers in November, with 1.35 million employees added since the end of the Great Recession. That is the most workers in the sector since December 2008.

Average weekly earnings for nonsupervisory and production workers in manufacturing have increased 3.1 percent year-over-year to $912.16, continuing an upward appreciation in wages in light of the tight labor market. To illustrate that point, the year-over-year rate has averaged 3.4 percent through the first 11 months of 2018, up from the average of 2.4 percent for all of 2017.

Meanwhile, nonfarm payroll employment rose by 155,000 in November, down from 237,000 in October and below the consensus estimate of around 180,000. The unemployment rate registered 3.7 percent for the third straight month, remaining the lowest since December 1969.

  1. Construction SpendingPrivate manufacturing construction spending decreased in October, down 1.0 percent to $66.77 billion at the annual rate, ending four straight months of gains. After falling to the lowest level since September 2014 in May ($60.77 billion), construction activity has trended slightly higher, even with the decline in October. The upward trend since the spring has been welcome news, and it is consistent largely with strength in the overall outlook. Along those lines, the value of construction put in place in manufacturing has risen a modest 3.1 percent from one year ago, with $64.79 billion in construction spending in the sector in October 2017. Nonetheless, construction in the sector remains well below the all-time high of $82.1 billion in May 2015.

  2. Factory Orders and ShipmentsNew orders for manufactured goods dropped 2.1 percent in October, but much of that decrease stemmed from large declines in aircraft and parts sales, which can often be highly volatile from month to month. Excluding transportation equipment, factory orders rose 0.3 percent. Disappointingly, new orders for core capital goods (or nondefense capital goods excluding aircraft)—a proxy for capital spending in the U.S. economy—were unchanged in October at $69.3 billion, with that measure drifting lower since reaching an all-time high in July ($69.9 billion). This suggests some softness in capital spending in the economy.

However, core capital goods spending has still increased a modest 3.4 percent over the past 12 months, and overall, factory orders rose a robust 6.9 percent year-over-year. Meanwhile, shipments edged down 0.1 percent for the month, but also increased 6.9 percent since October 2017.

  1. International Trade ReportThe U.S. trade deficit rose from $54.56 billion in September to $55.49 billion in October, the highest point in 10 years. The level of goods imports registered an all-time high, especially for automotive vehicles and parts, which set a new record. At the same time, the export of industrial supplies and materials also rose to a new high. On a more encouraging note, U.S.-manufactured goods exports have risen 6.6 percent through the first 10 months of 2018 relative to the pace at the same time frame in 2017. That suggests that manufacturing exports have continued to build on the rebound in international demand that started last year.

  2. ISM® Manufacturing Purchasing Managers’ Index® Manufacturing activity rebounded strongly in November after falling to a six-month low in October, according to the Institute for Supply Management® (ISM®). The ISM® Manufacturing Purchasing Managers’ Index® rose from 57.7 in October to 59.3 in November. The indices for new orders and production once again exceeded 60—a threshold suggesting robust expansion—and employment and inventory growth also accelerated. The sample comments continue to cite workforce shortages as a primary concern, mirroring the results of the NAM’s Manufacturers’ Outlook Survey. Exports were unchanged for the month, increasing on net at a very modest rate. In addition, rising raw material costs have been a major challenge for manufacturers of late, but in November, prices decelerated (but still grew at an elevated pace), with that measure at the lowest level since June 2017.

  3. Productivity and Costs (Revision)Manufacturing labor productivity grew 1.0 percent in the third quarter, an improvement from the prior estimate of just 0.5 percent but slowing from 1.2 percent in the second quarter. Output in the sector rose 4.1 percent in the third quarter, the fastest pace so far in 2018. Labor productivity for durable and nondurable goods firms increased 1.7 percent and 0.5 percent, respectively, in the third quarter.

Manufacturing labor productivity in the sector rose 1.2 percent over the past four quarters. While that improved from the 0.1 percent annual growth rate on average from 2013 to 2017 (and the 0.7 percent increase last year), it remains less than desired. The average growth rate for manufacturing labor productivity registered 3.9 percent and 4.6 percent in the 1990–2000 and 2002–2008 time frames, respectively, or the two prior economic recoveries. 

  1. University of Michigan Consumer SentimentThe Index of Consumer Sentiment was unchanged at 97.5 in December, according to preliminary figures. This was lower than the preliminary estimate of 98.3 reported a few weeks earlier. Americans’ assessments of economic conditions have slipped somewhat over the past few months, with the expectations component dropping in the latest survey. On the other hand, consumers feel more upbeat in December about the current economy, especially regarding the strength of the labor market. Even as the public’s perceptions about the economy have eased since March’s reading (101.4), which was the highest since January 2004, the data remain upbeat overall. Final data will be released December 21.

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