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NAM: Monday Economic Report

Manufacturers added 24,000 workers in April, the seventh consecutive month with robust hiring growth in the sector, averaging 26,571 per month over that time frame. As such, the latest jobs numbers confirm that the labor market has tightened significantly, with manufacturers increasing employment by a rather strong 19,000 per month on average since the end of 2016. Since the end of the Great Recession, manufacturing employment has risen by 1,202,000 workers, with 12,655,000 employees in the sector in this report. That is the highest level of manufacturing employment since December 2008. More importantly, healthy jobs growth is also leading to higher wages. Average weekly earnings for production and nonsupervisory employees in the manufacturing sector rose to $907.78, up 4.2 percent over the past 12 months.

Despite the healthy increase in manufacturing employment, nonfarm payrolls increased just 164,000 in April. While this represented an improvement from the gain of 135,000 in March, it was below the consensus estimate of around 190,000. Meanwhile, the unemployment rate dropped to 3.9 percent in April and continued to be the lowest level since December 2000. In addition, the so-called “real” unemployment rate, which includes discouraged, other “marginally attached” workers, fell from 8.0 percent to 7.8 percent, the lowest level since July 2001.

Other measures on manufacturing activity were also heartening, with continued growth and a solid economic outlook. The ISM Manufacturing Purchasing Managers’ Index declined to 57.3 in April, the lowest level since July 2017, but even with softer growth in production, exports and hiring, the latest survey remained consistent with healthy expansions in the sector. Along those lines, new orders were robust, with that measure at 60 or higher—a threshold suggesting very strong growth—for 12 straight months. The sample comments tend to echo that finding, with respondents noting healthy growth in activity and a promising outlook, even as they cite some trade worries. At the same time, manufacturers report accelerated input costs, with the data on raw material prices at levels not seen in seven years. There were similarly encouraging findings in the latest manufacturing survey from the Dallas Federal Reserve Bank and in the most recent factory orders data.

Improved international economic growth has also helped, with exports building in the early months of 2018 on the rebound in global demand in 2017. U.S.-manufactured goods exports totaled $280.56 billion through the first three months of 2018, up 6.34 percent from the year-to-date total of $263.83 billion in 2017. In addition, the U.S. trade deficit fell back to earth in March after soaring to the highest level since October 2008 in the prior release. The trade deficit declined from $57.74 billion in February to $48.96 billion in March—a six-month low. More importantly, goods exports rose to a new all-time high, up to $140.88 billion. With that said, it is worth noting that the U.S. dollar has risen 3.4 percent since January 25against major currencies, according to the Federal Reserve. Still, the dollar remains 8.6 percent lower than it was at the end of 2016, helping the overall competitiveness of U.S. exports.

As noted earlier, manufacturers continue to report a pickup in pricing pressures. Indeed, the personal consumption expenditures (PCEs) deflator has risen 2.0 percent over the past 12 months, the fastest year-over-year pace since February 2017. Excluding food and energy, core PCE inflation rose 1.9 percent year-over-year in March, accelerating for the seventh consecutive month after bottoming out at 1.3 percent in August. At the conclusion of its May 1–2 meeting, the Federal Open Market Committee (FOMC) acknowledged that inflation had approached the committee’s 2-percent goal, but as expected, participants chose not to raise short-term rates. The Federal Reserve did note continued strength in the U.S. economy, especially in the labor market, and the FOMC is widely expected to hike the federal funds rate again at its June 12–13 meeting for the second time so far this year.

Given the healthy gains in manufacturing employment described above, the latest Job Openings and Labor Turnover Survey report will be one of the highlights this week. In February, there were 426,000 job postings in the sector, with hiring at the highest level since November 2007. Indeed, manufacturers continue to cite their inability to attract and retain quality workers as the primary challenge for their business, according to the most recent NAM survey. There will also be additional data on inflation, with updates on consumer and producer prices. Other releases out this week include new figures on consumer credit, consumer sentiment and small business optimism.

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

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