Economic Report: August 10, 2015

Manufacturers added 15,000 net new workers in July, the fastest pace since January. This was an encouraging figure, even as we would like for it to have been more broad-based. Nondurable goods firms added 23,000 workers, but durable goods hiring remained challenged, down by 8,000. On the positive side, manufacturing employment rose to 12.35 million. I continue to predict that employment in the sector should reach or exceed 12.41 million by the end of the year. In the overall U.S. economy, businesses added 215,000 workers in July. Nonfarm payrolls have risen by at least 200,000 in 15 of the past 17 months, averaging almost 250,000 over that time frame.

The Federal Reserve is likely to look at this report favorably, focusing on healthy nonfarm employment gains over the past year and a half. The unemployment rate remained at 5.3 percent in July, matching its lowest level since August 2008. While it will acknowledge that hiring strength needs to be stronger, particularly in the manufacturing sector, the Federal Open Market Committee could begin to raise short-term interest rates at its September 16–17 meeting. This will hinge, of course, on rebounds in other economic indicators between now and then, including for manufacturing activity.

Along those lines, the Institute for Supply Management’s Manufacturing Purchasing Managers’ Index (PMI)edged somewhat lower in July, bucking expectations for a slight gain. The headline PMI decreased from 53.5 in June to 52.7 in July. While manufacturing activity has been weaker than what we saw at the end of last year, with the index averaging 56.9 in the fourth quarter of 2014, the data continue to reflect a slight rebound in demand and output after softness earlier in the year. In addition, new factory orders rose 1.8 percent in June, rebounding from declines in both April and May. The June gain stemmed largely from strong aircraft sales growth from the Paris Air Show, as expected. Excluding transportation equipment, new factory orders would have risen by a more modest 0.5 percent. The larger story is that manufacturers’ new orders have decreased in 9 of the past 11 months, with a number of economic headwinds dampening overall demand. On a year-over-year basis, new orders have declined 6.2 percent.

Those headwinds, notably the strong U.S. dollar and sluggish growth abroad, have also negatively impacted our international trade numbers. The U.S. trade deficit widened somewhat in June, largely led by an increase in goods imports and slightly reduced goods exports. According to the latest seasonally adjusted figures from TradeStats Express, U.S.-manufactured goods exports declined 4.16 percent year-to-date through the second quarter relative to the same time period in 2014. Manufactured goods exports were lower year-to-date to Canada, China and Japan, with exports to Mexico, our second largest trading partner, essentially unchanged through the first six months of this year. The trade report points to why it is important for policymakers to do whatever they can to improve the global competitiveness of the sector. Beyond improving the overall business climate in the United States, our leaders should also focus on new trade agreements that will help to open new markets, reauthorizing the Export-Import Bank and passing the Miscellaneous Tariff Bill.

Meanwhile, the construction and personal spending data released last week provided mixed news overall. Private manufacturing construction slowed somewhat in June, even as it continues to remain strong overall. May’s reading had been an all-time high for the series. In fact, manufacturing construction has risen substantially, up 62.0 percent year-over-year, with much of that coming from investments in the chemical sector. At the same time, personal spending increased by 0.2 percent in June, easing somewhat from the 0.7 percent growth rate in May. This was the slowest pace since February, but on the positive side, spending has now risen for five straight months. With reduced spending, the savings rate increased from 4.6 percent in May to 4.8 percent in June. Personal income rose 0.4 percent in June, with real personal income up 3.8 percent over the past year.

This week, we will get the latest news on industrial production on Friday. After being unchanged in both May and June, we will be looking for signs of a possible rebound in manufacturing output in the July data. Along those lines, economists hope to also see signs of better hiring and retail spending activity in reports due out on Wednesday and Thursday, respectively. Job openings in the sector have moved in the right direction in prior releases, providing some encouragement for net hiring moving forward. Other highlights for the week include updates on consumer confidence, labor productivity, producer prices and small business optimism.

Chad Moutray
Chief Economist
National Association of Manufacturers (NAM)

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