After soaring to new multiyear highs in each of the last few reports, the IHS Markit Flash Eurozone Manufacturing PMI declined from 57.4 in June, a level not seen since April 2011, to 56.8 in July, a three-month low. Despite the somewhat slower growth in this latest survey, the underlying trend remains positive, with European manufacturers continuing to expand at decent rates. New orders (down from 58.7 to 57.1) and output (down from 58.7 to 56.9) decelerated in July but mostly reflected strong growth, with exports (unchanged at 57.4) and employment (up from 55.9 to 56.0) remaining promising. In a similar way, the future output index (down from 67.4 to 66.5) indicated healthy expectations for the next six months, albeit with some easing. The forward-looking index had been at its highest point since it was introduced in mid-2012 in June, and the current data is not far from that level. Read More
Real GDP grew 1.4 percent in the first quarter, pulled lower by weak inventory spending and softer-than-desired consumer spending. At the same time, business investment was a bright spot in the report, and, according to new data from the Bureau of Economic Analysis, so was manufacturing. Real value added output rebounded in the first quarter, up 4.7 percent after falling by 2.9 percent in the fourth quarter. As a result, manufacturers contributed 0.54 percentage points to headline growth in the first quarter, a notable improvement from the 0.39 percentage point drag seen in the fourth quarter. Indeed, it was the largest industrial contributor to real GDP growth in the release. Read More
The Federal Reserve Bank of Philadelphia said that manufacturing activity continued to expand strongly in July. With that said, the composite index of general business activity decreased from 27.6 in June to 19.5 in July. Even with some easing for the second straight month, the headline index has averaged 29.7 year-to-date, illustrating the much-improved performance so far in 2017. The composite measure peaked at 43.3 in February, its best reading since November 1983. In July, manufacturers reported positive growth across-the-board, but many of the underlying data points decelerated. This included new orders (down from 25.9 to 2.1), shipments (down from 28.5 to 12.2), employment (down from 16.1 to 10.9) and the average workweek (down from 20.5 to 3.8). To illustrate the slower growth in this survey, the percentage of respondents saying that orders had increased in the month dropped from 44.8 percent in June to 30.5 percent in July, with those suggesting a decrease rising from 18.9 percent to 28.4 percent. Read More
The Census Bureau and the Department of Housing and Urban Development reported that new housing starts rebounded in June after a soft spring. New residential construction rose from an annualized 1,122,000 units in May, an eight-month low, to 1,215,000 in June. Since reaching 1,288,000 units in February, housing starts have pulled back; however, on the positive side, this is the first time activity has exceeded 1.2 million since then, which is encouraging. Homebuilder optimism remains strong despite slipping once again, with respondents to that survey predicting healthy gains in activity over the next six months (see below). I am forecasting growth of 1.28 million starts by year’s end.
Looking at the June data, single-family (up from 799,000 to 849,000) and multifamily (up from 323,000 to 366,000) starts increased in the month, with both at their fastest rate since February, mirroring the headline number. The Midwest and Northeast saw the strongest growth, with only marginal gains in the West, whereas activity slipped in the South. On a year-over-year basis, housing starts rose 2.1 percent from June 2016’s pace of 1,190,000. Single-family starts have jumped 10.3 percent over the past 12 months, up from 770,000 one year ago. In contrast, multifamily starts, which can be highly volatile from month to month, have fallen 12.9 percent over that time frame.
The National Association of Home Builders (NAHB) and Wells Fargo reported that the Housing Market Index continued to reflect strength despite slipping once again in July to its lowest level since the election. The index decreased from 66 in June to 64 in July, its weakest pace since October (63). NAHB Chief Economist Robert Dietz attributed much of the decline to “increasing supply-side costs,” which are dampening sentiment among builders and pushing up prices.
To be fair, index values greater than 50 indicate strong builder confidence, with readings of 60 or more indicating very strong expectations for activity, and as such, the data continue to indicate healthy growth and improvements over the longer term. Indeed, the survey results remained quite elevated even after easing from March’s reading of 71, which was the highest level since June 2005.
Along those lines, home builders have healthy assessments about single-family home sales over the next six months. The index for expected sales dropped from 75 to 73—still a very healthy figure. In the July data, sentiment ticked higher in the Northeast and the West but dropped a little in the Midwest and South.
Improving the international climate for trade and commerce is an immediate focus for world leaders, with major discussions at the recent Hamburg-hosted G20 summit and within the Trump Administration. The National Association of Manufacturers and its members strongly agree: with more than half of the U.S. manufacturing workforce dependent on customers outside the United States, boosting the global economy (and addressing market barriers) is a vital focal point for manufacturers big and small across the United States.
Given the outsized role of international commerce for U.S. manufacturing, I traveled to Europe last week to press both U.S. and international stakeholders for action on international commercial issues that make a difference for manufacturing growth and competitiveness. My meetings included senior U.S. government officials on the frontlines of the global economy, leaders of important global institutions such as the World Trade Organization (WTO) and Organization for Economic Cooperation and Development (OECD) and international business partners.
In Paris, I met with OECD Secretary-General Angel Gurria and his senior leadership to discuss the OECD’s work on a range of issues from international trade, investment, science and innovation, labor and health. I introduced the OECD to our new Engaging America’s Global Leadership (EAGL) coalition that seeks to ensure that the OECD and other global institutions operate within their mandate, are transparent and accountable to their members and follow best practices in consultations with the private sector and other stakeholders and in the development of analyses and recommendations. Those productive discussions have already spurred follow-up opportunities to engage OECD officials on these issues in both Paris and Washington.
In Geneva, Dempsey met with senior WTO officials, introducing the new EAGL coalition and also discussing a number of other key manufacturing trade priorities in advance of the upcoming WTO Ministerial Conference in Buenos Aires.
In both cities, I met with senior officials at the U.S. Missions to the OECD, the United Nations and WTO that work tirelessly with these institutions to move forward American priorities and defend American interests. We discussed the important role these institutions can and should play in creating a more fair and open international economy in which manufacturing can thrive. I also had the opportunity to meet with NAM members and international business leaders to discuss common challenges and new opportunities to band together to improve the international commercial climate to grow manufacturing and good-paying jobs.
Since its founding, the NAM has been committed to open and fair trade and constructive engagement with global institutions that are pillars of the international trading system. That commitment has never been stronger. From our work here at hope seeking a strong and pro-growth outcome to North American trade negotiations to our work across the globe, the NAM is at the frontlines on the core international issues that are critical to support a strong, growing and competitive manufacturing sector in the United States.
The Empire State Manufacturing Survey reported that growth in manufacturing activity softened in July after rebounding in June. The composite index of general business conditions declined from 19.8 in June—its fastest pace since September 2014—to 9.8 in July. It was the second straight monthly expansion, but the underlying data indicated slower growth in July across the board than in the prior survey. This included new orders (down from 18.1 to 13.3), shipments (down from 22.3 to 10.5), employment (down from 7.7 to 3.9) and the average employee workweek (down from 8.5 to 0.0). More than 35 percent of respondents said that orders were higher in both June and July, but the difference maker in this month’s data was the jump in those saying sales were lower, up from 17.0 percent to 22.3 percent. Yet, even with some easing, the manufacturing sector in the New York Federal Reserve Bank’s district is stronger today than at this point last year, with modest expansions in most measures. Read More
The Federal Reserve reported that manufacturing production rebounded in June, up 0.2 percent, after falling in two of the three prior months. Overall, springtime production in the sector was choppier than we would have desired or expected, especially given the more robust outlook in other data sources. Yet, even with some disappointment in recent months, the longer-term trend for output among manufacturers has been quite positive. Across the past 12 months, manufacturing production has risen 1.2 percent. It was the eighth consecutive positive year-over-year reading for manufacturing output and progress from the 0.2 percent year-over-year gain in June 2016. Similarly, manufacturing capacity utilization inched up from 75.3 percent in May to 75.4 percent in June. For comparison purposes, utilization in the sector was 75.1 percent one year ago. Read More
The Bureau of Labor Statistics reported that consumer prices were flat in June. Energy prices decreased 1.6 percent, falling for the fourth time in the past five months, with gasoline prices off 2.8 percent in June. This was largely consistent with data from the Energy Information Administration, which noted that the weekly average price for regular conventional gasoline was $2.308 on May 29 but fell to $2.201 on June 26. In contrast, food prices were flat for the month, with higher costs for meats, poultry, fish and eggs offset by lower prices in other categories. Over the past 12 months, food and energy costs have increased 0.9 percent and 2.3 percent, respectively.
Overall, the consumer price index increased 1.6 percent year-over-year in June, its lowest rate since October. This suggests that the acceleration in pricing pressures that peaked at a 2.8 percent year-over-year rate in February has slowed since then. With that said, year-over-year consumer inflation was 1.0 percent in June 2016, suggesting that overall prices have still trended slightly higher over the past year despite some deceleration in that pace over the past few months.
The U.S. consumer appears to be more cautious than we would expect, with disappointing retail sales figures once again in June, falling for the second straight month, according to the Census Bureau. Spending at retailers were off by 0.2 percent in June, extending the 0.1 percent declines seen in May and below consensus estimates for a slight gain. (On the positive side, the May number was revised higher, as it was originally down by 0.3 percent.) Americans had been more willing to open their pocketbooks, especially relative to the caution seen at the beginning of 2016. This culminated in 5.6 percent year-over-year growth in January, its fastest pace since March 2012, but the year-over-year rate has eased since then. Since June 2016, retail spending has increased by a more modest 2.8 percent. Excluding autos, the year-over-year pace was 2.4 percent. Read More