Earlier this morning, manufacturers learned that the manufacturing sector now contributes a whopping $2.25 trillion to the American economy. That is the highest level ever and up nearly one-third (32.5 percent) since the Great Recession. It also means that manufacturing accounts for nearly 11.5 percent of our entire economy. The release of the data comes on the eve of President Donald Trump’s one-year anniversary as president.
So what better time than now to look back over the past year and gauge the progress of the manufacturing sector? The toplines are clear: U.S. manufacturing trends have moved significantly in the right direction and continue to do so, with business leaders very upbeat about activity in 2018. This optimism is more than just a by-product of global economic improvement; it is also the result of pro-growth policies emanating from the administration and Congress, such as comprehensive tax reform and regulatory reform.
Here are some highlights that illustrate why economic sentiment has soared to new highs in recent months:
Soaring Stock Market
The Dow Jones Industrial Average (DJIA) closed at 18,332.74 on Election Day in 2016, and it closed at more than 26,000 for the first time ever on January 17, rising more than 40 percent over that time frame and reaching new highs at an ever-increasing speed. The DJIA rose 25.1 percent in 2017 alone.
High Manufacturer Optimism
The latest quarterly NAM Manufacturers’ Outlook Survey, released last month, reached another all-time high in confidence with 94.6 percent of respondents feeling positive about their own company’s outlook. It is the highest in the survey’s 20-year history. The NAM survey also found that respondents anticipated sales and capital spending to increase over the next 12 months at the fastest rates since mid-2011, and employment continued to trend strongly upward.
Strong Job Market
In the above-mentioned NAM survey, respondents cited the inability to attract and retain a quality workforce as the top business challenge, a sign of how much the labor market has tightened. Indeed, manufacturers added 25,000 workers in December, averaging 16,333 per month in 2017 as a whole. This stands in contrast to the loss of 16,000 workers on net in 2016. In addition, there were 12.54 million workers in the sector, up 1,086,000 since the Great Recession. That was the highest level of manufacturing employment since January 2009.
Better Export Growth
After declines in both 2015 and 2016 on global headwinds, S.-manufactured goods exports rose more than 4 percent through the first 11 months of 2017, a welcome development. International demand has been boosted by both stronger global economic growth, with the J.P. Morgan Global Manufacturing PMI in December recording its best reading since February 2011, and a weaker dollar, which fell 8.6 percent last year.
Solid Demand Growth
The Institute for Supply Management also noted highly elevated levels of activity in December, with the Manufacturing PMI at 59.7, the best reading since September’s 13-year high (60.8). New orders expanded at the best rate since January 2004.
Stronger Output Growth
Manufacturing production rose for the fourth straight month in December, with 2.4 percent growth over the past 12 months. That was not far from November’s 2.5 percent year-over-year pace, which was the fastest since July 2014. Similarly, manufacturing capacity utilization in December matched November’s rate of 76.4 percent, a reading not seen since May 2008.
Robust Economic Growth Overall
On January 26, manufacturers will get the first look at real GDP growth for the fourth quarter, which I predict will be 3.6 percent. If I am correct, it would mean that the U.S. economy would have grown at least 3 percent for the third straight quarter, boosted by strong consumer and business spending and a turnaround in export markets. My forecast is for 2.3 percent and 3.0 percent growth in 2017 and 2018, respectively, with the passage of pro-growth policies, including tax reform, brightening the outlook. If at least 3 percent growth is achieved in 2018, it would be the first time since 2005.
The economic progress over the past year has been impressive. More importantly, the prospects for growth in the manufacturing sector for 2018 are strong, with business leaders confident they can build on recent gains. It is hoped that this optimism leads to another promising year for the sector.