• AIM Team

NAM: Monday Economic Report

It was another week with record-breaking economic data, specifically for employment and the business outlook. First, manufacturing job openings hit a new all-time high in July. Manufacturers posted 506,000 job openings in July, up from 475,000 in June. That was the highest reading since the Job Openings and Labor Turnover Survey was introduced in December 2000, with postings for nondurable goods jobs also hitting a new record high.

At the same time, job openings for nonfarm payroll businesses soared to a new all-time high as well, up from 6,822,000 in June to 6,939,000 in July. In addition, there are more job openings in the U.S. economy than the number of people looking for work (6,280,000 in July and 6,234,000 in August). More than anything, that reality helps to explain why workforce concerns are top-of-mind for so many manufacturers (and other industries) right now. Overall, the data reflect an ever-tightening labor market, with manufacturing business leaders citing the inability to attract and retain workers as the top challenge in the most recent NAM Manufacturers’ Outlook Survey.

Similarly, for the eighth consecutive month, the National Federation of Independent Business (NFIB) noted workforce challenges as the “single most important problem” in its August survey. The net percentage planning to hire new workers in the next three months increased from 23 percent to 26 percent, and 38 percent of respondents said they have job openings to fill right now. Both readings were the best in the survey’s history. Moreover, the NFIB Small Business Optimism Index rose to the highest reading in the survey’s 45-year history. The headline index jumped from 107.9 in July to 108.8 in August, shattering the previous record set in July 1983 (108.0). The percentage of respondents saying the next three months would be a “good time to expand” increased from 32 percent to 34 percent, matching the all-time high in May.

Beyond those record-setting figures, other indicators continue to show manufacturing growth remains robust. Manufacturing production increased 0.2 percent in August, rising for the third straight month or in four of the past five months. The sector continues to see strong growth, with manufacturing output up 3.1 percent over the past 12 months, the best year-over-year rate since June 2012. Similarly, manufacturing capacity utilization inched up from 75.7 percent in July to 75.8 percent in August, a four-month high. Overall, manufacturing remains one of the bright spots in the economy right now, with business leaders continuing to report solid gains in sales, output and employment. Manufacturers have benefited from pro-growth policies, including tax and regulatory reform, as well as pent-up demand globally.

Moreover, total industrial production rose 0.4 percent in August for the second consecutive month. In addition to increased manufacturing output, mining and utilities production increased 0.7 percent and 1.2 percent in August, respectively. Over the past 12 months, industrial production has risen by a very robust 4.9 percent, the fastest year-over-year pace since December 2010. Mining and utilities production has grown by 14.1 percent and 4.8 percent year-over-year, respectively. In addition, capacity utilization ticked up from 77.9 percent to 78.1 percent, just shy of the 78.2 percent reading in April, which was the best rate since February 2015.

Meanwhile, consumers are also optimistic. The University of Michigan and Thomson Reuters reported that the Index of Consumer Sentiment rose from 96.2 in August to 100.8 in September. This was not far from March’s reading (101.4), which was the highest since January 2004. As such, Americans feel mostly upbeat as they enter the autumn months. As the press release states, this is “largely due to more favorable prospects for jobs and incomes.” At the same time, consumers also cited many concerns regarding ongoing trade negotiations. With that in mind, retail spending edged up 0.1 percent in August. It was the seventh straight monthly increase in retail spending, and more importantly, sales have jumped 6.6 percent over the past 12 months. With that said, one of the larger weaknesses in August was motor vehicle and parts dealers, with sales off 0.8 percent for the month. Excluding autos, retail spending increased 0.3 percent in August, with a very robust 7.3 percent year-over-year rate of growth.

One of the larger challenges of late has been accelerating pricing pressures, and the latest consumer and producer price data seem to indicate some stabilization. Consumer prices increased 0.2 percent in August, boosted by higher energy costs, whereas producer prices for final demand goods and services edged down 0.1 percent for the month. More to the point, the year-over-year growth rates slowed in both reports. The consumer price index has risen 2.7 percent over the past 12 months, down from 2.9 percent growth in July, the highest year-over-year rate since February 2012. Similarly, producer prices have increased 2.8 percent since August 2017, down from 3.3 percent and 3.2 percent year-over-year in June and July, respectively. June’s pace was the fastest since December 2011. Core rates, which exclude food and energy costs, have also moderated. Core consumer inflation rose 2.2 percent year-over-year in August, with core producer costs up 2.8 percent. This might take some pressure off the Federal Reserve, even as it prepares to hike short-term rates later this month.

New residential construction has been disappointing in recent months, with just 1,168,000 housing starts at the annual rate in July. Homebuilders have cited affordability and workforce challenges as top concerns, with weather likely an issue in the July figures. This week, new data on housing starts and permits will be released. Despite the weak figures over the past two months, housing starts are expected to rebound in the second half of the year, with the current forecast calling for 1.3 million units by year’s end and builders upbeat about sales growth. Other highlights this week include new manufacturing surveys from IHS Markit® and the New York and Philadelphia Federal Reserve Banks, along with updates on leading indicators and state employment.

Chad Moutray, Ph.D., CBE Chief Economist National Association of Manufacturers

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