Below is the summary from this week’s Monday Economic Report:
The employment numbers on Friday showed what many manufacturers have told us for some time—the U.S. economy is soft. The number of manufacturing jobs fell by 15,000 workers in August, the first decline since last September. The largest declines occurred in the motor vehicles sector, which has been one of the stronger sectors overall in the economic recovery. The non-farm business sector as a whole hired just 96,000 net new workers, its sixth straight disappointing month. Even the lower unemployment rate—which fell from 8.3 percent to 8.1 percent—was not as good as it might seem, as it was the result of having fewer people in the labor force.
The poor jobs report mirrored the dismal global manufacturing reports that came out last week. The Institute for Supply Management (ISM) said that manufacturing activity in the United States contracted for the third consecutive month. New orders, production and exports continued to contract, and survey respondents mostly discussed slowing sales and political and economic uncertainties. Prices, which had eased in recent months, also began to move higher. Meanwhile, revised data from the Bureau of Labor Statistics (BLS) confirmed that manufacturing labor productivity in the second quarter eased significantly from the first quarter on lower output growth. The Census Bureau also reported that manufacturers decreased their construction investments in July, perhaps responding to recent weaknesses.
The slowdown in activity was not limited to the United States, with global manufacturing production decelerating. The JPMorgan Global Manufacturing & Services Purchasing Managers’ Index (PMI), prepared by Markit, found that global output eased, with manufacturing production declining for the third straight month and new orders stagnant. This data follows other releases last week showing contraction in the Eurozone, China and elsewhere. In fact, of our major trading partners, just Canada, Mexico and Hong Kong have PMI numbers greater than 50—the threshold for expansion—according to Markit. Against this backdrop, the largest piece of foreign news last week was from the European Central Bank, which briefly provided the markets with confidence after agreeing to a bond-buying program for Spanish and Italian short-term debt. Time will tell if this gambit will pay off, especially as Europe’s challenges remain significant.
Speaking of monetary policy, the highlight of this week will come on Thursday, when the Federal Reserve will announce whether or not it will do another round of quantitative easing to help stimulate the U.S. economy. The odds of such a move have increased in recent weeks with weak economic data. Aside from the Fed’s announcement, this will be a busy week of economic data. Among the biggest figures, new export data will come out tomorrow, producer price information will be announced on Thursday and industrial production activity will be released on Friday.
Chad Moutray is chief economist, National Association of Manufacturers.