• AIM Team

NAM: Monday Economic Report

Manufacturers added 31,000 workers in February, and revisions in the December and January data increased employment in the sector by 28,000 in total from previous estimates. As such, the latest jobs numbers confirm that the labor market has tightened significantly, with manufacturers increasing employment by a rather robust 18,876 per month on average since the end of 2016. That is quite a turnaround from the sluggish job growth in 2016, and it is a sign that firms have continued to accelerate their hiring as the economic outlook has strengthened and demand and production have improved considerably. Indeed, manufacturers have told us that challenges in recruiting new workers is their primary business concern right now.

Along those lines, average weekly earnings for production and nonsupervisory employees in manufacturing rose from $891.63 in January to $900.55 in February. That translated into 3.8 percent growth over the past 12 months, up from $867.30 in February 2017, which further illustrates the strength of the labor market right now. Since the end of the Great Recession, manufacturing employment has risen by 1,161,000 workers, with 12.61 million employees in the sector in this report. That is the highest level of manufacturing employment since December 2008.

Overall, nonfarm payrolls increased by 313,000 in February, the fastest monthly pace since July 2016 and well above the consensus estimate of around 200,000. Over the past 14 months, the U.S. economy has added 195,714 each month on average—a strong figure. Meanwhile, the unemployment rate was unchanged at 4.1 percent for the fifth straight month, continuing to be the lowest level since December 2000. In addition, the labor force participation rate ticked up from 62.7 percent to 63.0 percent, matching the rate in September, which was the best since November 2013.

Improvements in the global economy have also helped to boost manufacturing in the United States, and trade volumes have risen significantly over the past year on the better outlook. (For more information on such trends, see the latest Global Manufacturing Economic Update.) In fact, international demand has started 2018 on a positive note, extending the rebound in 2017. U.S.-manufactured goods exports were $86.36 billion in January, up 3.94 percent from $83.09 billion one year ago. This builds on progress seen in 2017, where U.S.-manufactured goods exports rose 4.66 percent, according to TradeStats Express. That was much better than the declines of 6.20 percent and 4.04 percent in 2015 and 2016, respectively.

Despite such positive news, new factory orders fell 1.4 percent in January, declining for the first time since July, mainly on large decreases in aircraft orders, which can be highly volatile from month to month. Excluding transportation equipment, new orders for manufactured goods rose 0.4 percent in January. Overall, new factory orders have trended sharply higher over the past year. Along those lines, sales of manufactured goods have soared 6.6 percent since January 2017, or 6.5 percent excluding transportation equipment sales. In addition, core capital goods—or nondefense capital goods excluding aircraft—decreased 0.3 percent in January, but rose a healthy 6.3 percent over the past 12 months. This measure is often seen as a proxy for capital spending in the U.S. economy.

Finally, consumer spending has been one of the stronger elements in the economy, with healthy retail sales at the end of last year. With that said, purchases slowed in January, as seen in the latest data. That was further echoed in new figures from the Federal Reserve on U.S. consumer credit outstanding. While overall credit rose 4.3 percent at the annual rate in January, it decreased from 6.0 percent growth in December and registered the slowest pace since September. Americans had increased their willingness to take on credit card debt in November and December, which helped to propel strong holiday sales. However, that willingness slowed considerably in January. With that said, consumer credit has increased 5.3 percent year-over-year, and this pace remains stronger than this time last year.

This week, there will be several reports issued that will show the health of the manufacturing sector and the larger economy. Manufacturing production was unchanged in January, with 1.8 percent growth over the past 12 months. In February, the sector should once again show modest growth, building on healthy gains last year. Moreover, the New York and Philadelphia Federal Reserve Bank districts should show continued strength in their March manufacturing surveys. There will also be important releases on retail spending and the housing market. Other highlights this week include updates on consumer confidence, consumer and producer prices, job openings, small business optimism and state employment.

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