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NAM: Monday Economic Report

Job openings in the manufacturing sector recently soared to the highest reading since January 2001, with 451,000 openings in April, up from 421,000 in March. Overall, the pace of manufacturing job openings has trended higher, consistent with the tight labor market seen in other data. While the generation of new jobs is nearly always welcome news, the gap between the number of manufacturing workers and available manufacturing jobs—often a result of the fact that there simply are not enough qualified applicants to fill them—is a serious problem for manufacturers. Indeed, manufacturers cited the inability to attract and retain talent as their top concern in the latest NAM survey. The strong employment numbers were not limited to manufacturing. Job openings for nonfarm payroll businesses rose to a new all-time high, jumping to 6,698,000 in April.

Despite the strong employment data, labor productivity growth has been frustratingly slow since the end of the Great Recession, averaging just 0.1 percent per year from 2013 to 2017. The latest figures did not change that narrative. Manufacturing labor productivity fell 1.2 percent in the first quarter, revised lower after originally estimated to have risen 0.5 percent. The reduction stemmed largely from slower growth in output, off from a prior estimate of 3.3 percent growth in the first quarter to 1.7 percent in this release. In addition, hours worked in the manufacturing sector rose 2.9 percent in the first quarter, with unit labor costs jumping 5.2 percent. At the same time, the nonfarm labor productivity growth rate was also revised lower, off from the previous estimate of 0.7 percent in the first quarter to 0.4 percent in the latest figures.

Meanwhile, new factory orders declined 0.8 percent in April, falling for the first time since January. The decrease in April stemmed largely from sharply reduced nondefense aircraft and parts orders, which fell 28.9 percent. Aircraft sales are highly volatile from month to month, however, with orders often bunched around key events. Excluding transportation equipment, new orders for manufactured goods increased 0.4 percent in April. Overall, new factory orders have trended much higher over the past year, soaring 7.4 percent since April 2017. Encouragingly, core capital goods—or nondefense capital goods excluding aircraft—rose 1.0 percent in April. Much like the headline numbers, core capital goods saw a solid gain of 5.7 percent over the past 12 months. This measure of core capital goods can often be seen as a proxy for capital spending in the U.S. economy, and as such, the strong gains suggest that capital investments increased at a relatively healthy pace.

More importantly for manufacturers, exports have started 2018 on a positive note, extending the nice rebound in 2017. U.S.-manufactured goods exports totaled $377.28 billion through the first four months of 2018 using non-seasonally adjusted data, up 6.75 percent from the year-to-date total of $353.44 billion in 2017. For its part, the U.S. trade deficit eased for the second straight month in April after soaring to the highest level since October 2008 in February. The trade deficit declined to $46.20 billion in April, the lowest level since September. Goods exports rose to a new all-time high, up to $141.25 billion, boosted by a record level of exports for industrial supplies and materials ($45.66 billion), largely on strength in the petroleum segment. Indeed, petroleum exports ($19.92 billion) registered a new high as well. Also helping to push the trade deficit lower, goods imports fell to $209.51 billion, and the service-sector trade surplus edged down to $22.07 billion.

This week, much of the economic focus will be on the Federal Reserve, which is expected to increase the federal funds rate for the second time this year. The Federal Open Market Committee meeting on June 12–13 will likely be driven by a desire to get ahead of strength in the U.S. economy, especially in labor markets. Along those lines, there will be important new data on consumer and producer prices this week.

For manufacturers, the Federal Reserve will release May industrial production figures. In April, manufacturing production rose 0.5 percent, with 1.8 percent growth year-over-year. More importantly, manufacturing capacity utilization rose to 75.8 percent, the highest rate since August 2015. The New York Federal Reserve Bank is expected to release encouraging figures on manufacturing activity in its June survey. Other highlights this week include updates on consumer confidence, retail sales, small business optimism and state employment.

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

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