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NAM: Monday Economic Report

In the latest NAM Manufacturers’ Outlook Survey, manufacturing leaders in the United States continue to have unprecedented levels of optimism, spurred by improvements in the global economy and, in particular, by pro-growth policies such as tax reform and regulatory relief. Overall, 92.5 percent of respondents felt either somewhat or very positive about their own company’s outlook. This continues the high rate of optimism reported since the beginning of 2017, including the 95.1 percent result in June, which was the highest rate since the introduction of the survey in the fourth quarter of 1997. The four-quarter rolling average inched up to a record-high 93.9 percent. Similarly, manufacturers’ optimism for 2018 is on track to be the highest annual average in the survey’s 20-year history.

The underlying data continue to show strength in the sector, especially in terms of job growth—more than 58 percent of manufacturers anticipate more hiring over the next year, and about one-quarter (23.1 percent) are planning employment growth of 5 percent or more. Wage growth is once again expected to rise at the fastest pace since 2001. The manufacturing sector’s robust jobs situation, however, is also exacerbating the industry’s pre-existing skills gap challenge. The survey found that—at 73.2 percent—the inability to attract and retain workers remained respondents’ top concern for the fourth straight survey. The survey also found nearly half of manufacturers (45.4 percent) cited this crisis as the number-one threat facing their business. More than one in four (28.4 percent) said it has forced them to turn down new business opportunities, and one-third (33.2 percent) noted they have had to hold off on plans to hire more workers due to these workforce constraints.

Along those lines, manufacturers added 18,000 workers in September. The data continue to show strong hiring in manufacturing, with the sector generating 23,167 workers on average each month over the past 12 months. That is consistent with healthy growth in the manufacturing sector, including solid demand, production and the overall outlook. Since the end of the Great Recession, manufacturing employment has risen by 1,294,000 workers, with 12,747,000 employees in the sector in this report. Turning to income growth, average weekly earnings for production and nonsupervisory employees in manufacturing were $908.10 in September, up 3.5 percent from $877.38 in September 2017.

At the same time, nonfarm payroll employment increased by just 134,000 in September, the slowest monthly pace in one year and well below the consensus estimate of around 180,000. With that said, weather conditions, specifically with Hurricane Florence, likely pushed the data lower. On the positive side, the July and August data were revised higher, adding another 87,000 workers in total to those months. Nonfarm payrolls have risen by a solid 211,417 per month over the past 12 months. In addition, the unemployment rate fell to 3.7 percent in September, the lowest level since December 1969.

Meanwhile, manufacturers continued to report solid growth in activity in September, according to the Institute for Supply Management® (ISM®), even as it pulled back from August’s best reading since May 2004. The ISM Purchasing Managers’ Index® (PMI®) declined from 61.3 in August to 59.8 in September. Index readings greater than 50 indicate positive expansions in activity for the month on net, with data points greater than 60 consistent with very healthy gains. The underlying data provided mixed results but were encouraging overall. The expansion in new orders decelerated somewhat, yet the index continued to reflect very healthy demand overall, with that measure at 60 or greater for 17 consecutive months. At the same time, data improved for production and employment. The sample comments echoed that strength in the economy, even as respondents cited continuing trade worries.

Rising input costs have been cited as one of the top business concerns in recent surveys, including the latest NAM Manufacturers’ Outlook Survey and ISM® PMI® reports discussed above. This week, there will be new data on consumer and producer prices. In August, producer prices had risen 2.8 percent over the past 12 months—an elevated pace but down from the 3.2 percent rate in June, which was the fastest since December 2011. As such, there has been some moderation in inflationary growth in the past few months, a stabilization also seen in other pricing releases, including the consumer price index and the Federal Reserve’s preferred measure, the PCE deflator. The September report should continue this trend, with prices rising perhaps faster than the public and businesses have become accustomed to but with some stabilization from recent multiyear highs. Other highlights this week include updates on consumer confidence and small business optimism.

Chad Moutray, Ph.D., CBE

Chief Economist

National Association of Manufacturers

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