Here is the summary for this week’s Monday Economic Report:
Manufacturers added only 2,000 net new workers in September, continuing the trend of weak hiring growth since mid-2012. Durable goods industries hired an additional 9,000 workers in the month—mainly from fabricated metal products and machinery—but this was offset mostly by the loss of 7,000 employees from nondurable goods firms. Many business leaders remain hesitant to increase their workforce, with roughly 60 percent of manufacturers not planning to make any hiring changes over the next 12 months, according to the latest NAM/IndustryWeek Survey of Manufacturers. Even though net hiring remains frustratingly low, manufacturing job postings picked up in August, particularly for durable goods entities, recovering from a slowdown in job openings from April to July.
Hiring in the larger economy was also disappointing, with just 148,000 additional nonfarm payroll workers. Employment growth has decelerated as the year has progressed, with the monthly nonfarm payroll average falling from 205,250 in the first four months of 2013 to 155,600 in the five months since.
The government shutdown slowed the growth of manufacturing activity, according to Markit Flash U.S. Manufacturing Purchasing Managers’ Index (PMI) data. The composite index fell from 52.8 in September to 51.1 in October, its slowest pace this year, with output contracting slightly (down from 55.3 to 49.5). Other data for the U.S. manufacturing sector were mostly mixed. Durable goods orders in September jumped 3.7 percent, but this was due mainly to sharp increases in aircraft sales. The broader data indicated quite a bit of softness in overall new orders, even as shipments continued to reflect modest gains.
Meanwhile, two Federal Reserve Bank surveys observed differing trends. The Kansas City Federal Reserve continued to see progress in terms of production and shipments, whereas manufacturer confidence and activity in the Richmond Federal Reserve region were essentially stalled. Employment grew only slightly at best in both district surveys. Manufacturers remain upbeat about the next six months, but less enthusiastically than in previous surveys. The decrease in sentiment somewhat mirrored the drop in consumer confidence from the University of Michigan, with Americans frustrated by the political maneuverings during the government shutdown and debt ceiling debate. Now that the budget impasse has ended—at least temporarily—confidence should rise moving forward.
On the international front, manufacturing activity in China and Europe continues to stabilize, which should bode well for improvements in exports. The HSBC Flash China Manufacturing PMI rose to its highest level since March, expanding for the third straight month. New orders, output and exports picked up their pace from the previous month, albeit with modest growth rates and hiring still a challenge. Elsewhere, the HSBC Flash Eurozone Manufacturing PMI rose marginally from 51.1 in September to 51.3 in October. This was the fourth consecutive monthly expansion and a sign that the continent has begun to recover from two years of recession. On a country-by-country basis, however, growth rates differ sharply. For instance, production has been rising in Germany, while French manufacturing activity continues to contract.
Even with better economic figures in many of our largest trading partners, manufactured goods exports remain below their ideal levels so far in 2013. Using non-seasonally adjusted data, these exports have increased just 1.8 percent through the first eight months of the year relative to the same time period in 2012. While this represents some improvement from the previous month, it remains lower than we would prefer. The overall trade deficit data were not much different in August than in July.
This week, we will get two major reports on the health of the U.S. manufacturing sector. This morning, the Federal Reserve will release September industrial production data, with manufacturers extending the gains from August. The consensus estimate is for an increase of around 0.5 percent. At the end of the week, we will get the latest Institute for Supply Management (ISM) PMI data for October. Similar to the Markit readings discussed above, there could be some easing in activity, likely due to the government shutdown, but with continued modest growth nonetheless. Recent ISM surveys have been very upbeat, especially for new orders, so it will be interesting to see how sentiment changes this time around.
In addition to these reports, ADP will unveil its October employment analysis, with the government shutdown expected to diminish job growth in the month. The Bureau of Labor Statistics has postponed the official government jobs report back one week to November 8. The Federal Open Market Committee (FOMC) is also widely expected to make no changes to its monetary policy this week, following the non-taper decision at its September meeting. Other highlights this week include the Dallas Federal Reserve Bank’s manufacturing survey, the Conference Board’s consumer confidence index and new data from the Bureau of Labor Statistics on consumer and producer prices.
Chad Moutray is the chief economist, National Association of Manufacturers.
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