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NAM: Monday Economic Update

Meanwhile, the U.S. economy added 98,000 net new nonfarm payroll workers in March, well below the consensus estimate of around 185,000. The weaker-than-expected number stemmed from soft growth in the services sector, including reduced retail trade employment. Construction job gains were the slowest since August. This suggests that poor weather might have been a contributing factor. On the positive side, the unemployment rate fell from 4.7 percent in February to 4.5 percent in March, its lowest level since May 2007. Likewise, the so-called “real” unemployment rate declined from 9.2 percent to 8.9 percent, a level not seen since December 2007.

The stronger employment figures match the recent improvements in manufacturing activity seen in other data points, including the most recent NAM Manufacturers’ Outlook Survey, which found confidence rising to its highest point in the survey’s 20-year history. Along those lines, the Institute for Supply Management’s Manufacturing PMI expanded rather strongly in March despite a slight easing in the pace from February’s two-and-a-half-year-high reading. The composite index declined from 57.7 in February—its fastest rate since August 2014—to 57.2 in March. More importantly, it was the seventh straight monthly expansion in the headline number, recognizing definite progress after two years of notable challenges in the sector. Digging into the underlying data in the report, new orders continued to expand at a vigorous pace, with hiring and exports also rising in this release. On the negative side, pricing pressures continued to accelerate, with manufacturers paying more for raw materials as the economy has strengthened.

New factory orders were also encouraging, increasing for the third straight month in February and rising to its highest level since November 2014. A large percentage of that gain stemmed from a sizable increase in nondefense aircraft sales. More importantly, new factory orders, which have struggled mightily over the past few years, have begun to move in the right direction, up 7.3 percent since February 2016. Similarly, manufactured goods shipments rose 0.3 percent in February, mirroring the pace in January. The current shipments level was the best reading since December 2014. On a year-over-year basis, factory shipments have risen 5.9 percent, or 7.4 percent excluding transportation.

It is still too early in the year to say much about trade trends for 2017. Yet, so far, the manufactured goods exports picture has already reflected better data than what we saw over the past two years. Using non-seasonally adjusted data, U.S.-manufactured goods exports totaled $166.89 billion year to date in February, up 3.18 percent from $161.75 billion one year ago. This reflects better year-to-date figures to the following top-six markets for U.S.-manufactured goods. At the same time, the U.S. trade deficit fell from $48.17 billion in January—its highest level since March 2015—to $43.56 billion in February. The lower figure stemmed mainly from a drop in goods imports, with goods exports changing little in the release.

Meanwhile, private manufacturing construction spending fell to its lowest point since September 2014. The value of construction put in place in the sector declined from $67.91 billion in January to $66.77 billion in February. While manufacturing construction has largely trended higher over the past few years, activity has stalled since achieving the all-time high of $82.15 billion in September 2015. More than anything, this speaks to the numerous challenges in the sector since then, including global headwinds and economic uncertainties. Indeed, over the past 12 months, manufacturing construction has fallen 9.8 percent. With that said, sentiment has shifted in recent months with business leaders more upbeat in their outlook (see above). With manufacturers more positive about growth in demand and production, we would expect a turnaround in construction activity in the coming months.

This week, we will get some additional insights about retail spending. In general, recent surveys have reflected a huge surge in consumer confidence, with Americans more upbeat and more willing to open their pocketbooks than at this time last year. Indeed, retail sales were up a rather robust 5.7 percent year-over-year in February. We will be looking for continued strength in the March retail sales data, with the University of Michigan and Thomson Reuters releasing preliminary figures for April sentiment. Other highlights this week include the latest updates for consumer and producer prices, job openings and small business optimism.

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