Economic Report: July 13, 2015

In the minutes for the Federal Open Market Committee (FOMC) meeting June 16–17, Federal Reserve participants expressed some worry about economic challenges abroad, particularly in China and Greece. They also were “concerned that consumers could remain cautious or that the drag on sectors affected by lower energy prices and the higher dollar could persist.” Such anxieties pose some downside risk to their economic outlook. Nonetheless, at least for now, the Federal Reserve plans to begin normalizing short-term rates later this year, perhaps as soon as its September 16–17 meeting. The Federal Reserve remains cautiously optimistic about better growth in the second half of this year, even as it downgraded its forecast for real GDP growth from 2.3 to 2.7 percent in March to 1.8 to 2.0 percent at its June meeting. Its lowering of economic growth for 2015 stemmed largely from “transitory” factors earlier in the year, including “unfavorable weather in parts of the country and labor disputes at West Coast ports.”

The International Monetary Fund (IMF) also reduced its world outlook for 2015, with global output expanding 3.3 percent this year, down from 3.5 percent just three months ago. The IMF is more upbeat about U.S. growth, anticipating it to be 2.5 percent in 2015, even as its forecast was down from 3.1 percent in April. On the positive side, the IMF sees an uptick in 2016, with global output up 3.8 percent and real GDP in the United States increasing by 3.0 percent.

Nonetheless, the IMF sees growth in the emerging markets continuing to decelerate, with China leading the way on this easing. China is expected to grow 6.8 percent in 2015 and 6.3 percent in 2016, down from 7.4 percent in 2014. Along those lines, the Chinese stock market made headlines last week, with the Shanghai Stock Exchange Composite Index plummeting more than 25 percent since peaking on June 12. To address this downturn, the People’s Bank of China began injecting more liquidity into the marketplace to help boost equities, which has had limited effect to date. The bursting of the stock market bubble in China creates even more uncertainty for global markets and for demand in China in general. (For more on international trends, see the latest Global Manufacturing Economic Update.)

Manufacturers are watching these global developments closely. So far this year, export growth has been sluggish at best, with manufactured goods exports down 4.5 percent year-to-date relative to the same time period last year. The U.S. trade deficit also edged slightly higher in May, with the decline in goods exports outpacing the decrease in goods imports. On the positive side, petroleum imports were at their lowest levels since February 2002.

Meanwhile, there was encouraging news released last week in the labor market. Manufacturing job openingsneared an eight-year high in May, with the sector posting 347,000, the highest level since July 2007. This continues an upward trend for openings among manufacturers. Accordingly, net hiring was positive for the first time since January, which represented some degree of progress even if it continued to be less than desired. We hope to see a rebound in net employment growth in the coming months, particularly if it follows the lead of the job openings data. In the larger economy, nonfarm job openings increased to 5,363,000, another all-time high for the data series that began in December 2000.

Several reports coming out next week will help us gauge the current environment for manufacturers. The Federal Reserve will release June industrial production numbers on Wednesday, which we hope will show a rebound after declining for two straight months. Another highlight will be new housing starts on Friday, where we will also be looking for improvements from past months. We will get new survey numbers next week from the New York and Philadelphia Federal Reserve Banks as well as the Manufacturers Alliance for Productivity and Innovation. Other data points to watch for include the latest figures on consumer confidence, consumer and producer prices, retail sales and small business sentiment.

Chad Moutray
Chief Economist
National Association of Manufacturers (NAM)

For more news from NAM, visit www.nam.org.