Below is the Monday Economic Report for this week:
Economic indicators released last week were mixed. Manufacturing continues to advance, boosting output and overall job creation. The Institute for Supply Management (ISM) released its latest Purchasing Managers’ Index (PMI), which showed new orders, production and employment growing at a faster pace than previous months. One encouraging sign was the improvement in new export sales, which should help to propel new activity moving forward. Likewise, the Bureau of Labor Statistics (BLS) reported sharply higher labor productivity for manufacturers in the first quarter, up 5.9 percent, led by stronger output.
The productivity figures suggest that manufacturers should continue hiring. Indeed, manufacturing employment continued to expand—albeit at a lower rate—in April, adding 16,000 new jobs. Most of the additional employment came from durable goods sectors, continuing a trend throughout the recovery to date. During the past five months, the sector has added 167,000 new jobs, making it a bright spot in an otherwise disappointing labor report.
Most economic news lately has pointed to a spring slowdown. Factory orders in March fell 1.5 percent. While nondefense aircraft contributed to most of the change, new orders excluding transportation were flat, reflecting larger weaknesses. Data from ISM-Chicago and the Dallas Federal Reserve Bank echoed the easing of manufacturing activity, with new orders and overall perceptions about growth contracting. Yet, future expectations for production are cautiously optimistic, and activity is projected to pick up in the coming months. I anticipate industrial production rising 4 percent this year. Seasonal factors can explain at least part of the slowdown, and these should dissipate as future data are released.
One of the driving factors for economic growth has been the consumer. The most recent GDP figures found that nearly 1.5 percentage points of the 2.2 percent growth in the first quarter stemmed from personal consumption. This has helped lift manufacturing activity. Personal spending rose a more modest 0.3 percent in March, its slowest pace of the year. This is perhaps reflective of anxieties earlier in the year, with higher energy prices dampening consumer sentiment. Even with this easing, though, consumers still spent 4 percent more than a year ago.
Later today, we will get a sense of how consumer spending is being financed with the release of new consumer credit data from the Federal Reserve. Past releases have pointed to rising debt levels, and the Bureau of Economic Analysis now says that the savings rate has fallen to 3.8 percent. Other key data points to watch this week are job openings data tomorrow, international trade figures on Thursday and the latest producer price information on Friday.
Chad Moutray is chief economist, National Association of Manufacturers.