“Manufacturers have benefited from pro-growth policies, including tax and regulatory reform, as well as pent-up demand globally…”
The Bureau of Economic Analysis said that the U.S. economy grew by an annualized 4.1 percent in the second quarter of 2018, the best reading since the third quarter of 2014 and up from 2.2 percent growth in the first quarter. Robust growth in consumer and business spending and exports boosted the data. Since the end of the Great Recession, the U.S. economy has expanded 2.2 percent on average. Moving forward, real GDP should grow by roughly 3 percent in 2018, which would be the strongest growth rate since 2005.
Indeed, over the past six months, tax reform and regulatory relief have sparked the robust manufacturing job growth manufacturers predicted. The business optimism of our member companies stands at a record high, and 86 percent of them plan to invest in new plants and equipment, 77 percent plan to increase hiring, and 72 percent plan to increase wages and benefits for workers. That is driving the robust growth we are now seeing reflected in today’s report, placing an urgent need to grow and upskill the manufacturing workforce. Read More
“Manufacturing gross output increased from $6.228 trillion in the fourth quarter to $6.347 trillion in the first quarter, a new all-time high.”
The Federal Reserve reported that manufacturing production rebounded strongly in June after pulling back in May due to a fire at an auto supplier. Output in the sector increased 0.8 percent in June after falling 1.0 percent in May. So far in 2018, manufacturing production has seesawed from month to month, but up 1.0 percent over that time frame. Over the past 12 months, production in the sector has risen a respectable 1.9 percent, up from 1.7 percent in the previous release. My forecast for 2018 is for manufacturing production to increase 2.2 percent, which would indicate an uptick in output in the second half of this year. Similarly, manufacturing capacity utilization rose from 75.0 percent in May to 75.5 percent in June, which remains not far from April’s rate (75.8 percent), which was the best reading since August 2015.
In June, durable and nondurable goods manufacturing increased 1.6 percent and 0.1 percent, respectively. The largest increase came from motor vehicles and parts, which soared by 7.8 percent in June after dropping by 8.6 percent in May. Beyond automotive, other manufacturing sectors with increased production for the month included computer and electronic products (up 1.5 percent), wood products (up 1.2 percent), aerospace and miscellaneous transportation equipment (up 1.0 percent), fabricated metal products (up 0.9 percent), textile and product mills (up 0.9 percent), machinery (up 0.7 percent) and petroleum and coal products (up 0.6 percent), among others.
In contrast, output declined for apparel and leather (down 3.1 percent), nonmetallic mineral products (down 1.1 percent), furniture and related products (down 0.5 percent), miscellaneous durable goods (down 0.5 percent), plastics and rubber products (down 0.3 percent) and food, beverage and tobacco products (down 0.2 percent).
Meanwhile, total industrial production also recovered in June, up 0.6 percent after declining 0.5 percent in May. Mining output increased 1.2 percent in June, but utilities production fell 1.5 percent. Over the past 12 months, industrial production has risen 3.8 percent, up from 3.2 percent in the prior release and the fastest year-over-year pace since July 2014. Mining and utilities have grown 12.9 percent and 5.0 percent year-over-year, respectively. In addition, capacity utilization ticked up from 77.7 percent to 78.0 percent. That was just shy of the 78.2 percent reading in April, which was the best rate since February 2015.
The Bureau of Labor Statistics reported that job openings in the manufacturing sector pulled back in May from April’s pace, which was the best reading since January 2001. Manufacturers posted 441,000 job openings in May, down slightly from 452,000 in April. In the latest figures, there were fewer job openings in both the durable (down from 281,000 to 272,000) and nondurable (down from 171,000 to 169,000) goods sectors. More importantly, the number of manufacturing job postings has remained highly elevated even with the easing in May, exceeding 400,000 for the fifth consecutive month (and in nine of the past 12 months). Monthly job openings in the sector have averaged 430,400 year-to-date in 2018, up from averages of 341,250 and 389,667 for all of 2016 and 2017, respectively. Moving forward, continued strength in job openings is anticipated in the coming months.
Net hiring among manufacturers remains encouraging, even with some slower activity over the past few months. There were 346,000 hires in the sector in May, down from 358,000 in April. Hiring eased a bit for both durable (down from 213,000 to 202,000) and nondurable (down from 145,000 to 143,000) goods manufacturers, but the numbers have still trended in the right direction. At the same time, total separations—including layoffs, quits and retirements—declined from 343,000 to 333,000. As a result, net hiring (or hires minus separations) edged down from 15,000 in April to 13,000 in May. It was the 13th consecutive monthly increase in manufacturing net hiring, averaging 18,538 over that time frame.
Meanwhile, job openings for nonfarm payroll businesses declined from April’s all-time high, dropping from 6,840,000 in April to 6,638,000 in May. It remained the second-highest reading, however, and job openings in the U.S. economy continued to exceed the number of people looking for work (6,065,000 in May and 6,564,000 in June). This is a sign of a very tight labor market and helps to explain why workforce recruitment and retention are such large challenges right now.
The Bureau of Labor Statistics reported that manufacturers added 36,000 workers in June, the industry’s fastest pace of job growth since December. More importantly, it was the ninth consecutive month with robust hiring growth in the sector, with an average 27,111 jobs added per month over that time frame. As such, the latest jobs numbers confirm that the labor market has tightened significantly. Since the end of the Great Recession, manufacturing employment has risen by 1,260,000 workers, with 12,713,000 employees in the sector in this report. That is the highest level of manufacturing employment since December 2008.
Today’s report is more proof that the economy is still roaring following pro-growth tax and regulatory reform. Manufacturers have now added 155,000 total jobs in just the six months since tax reform was enacted—a marked increase in the pace of job creation compared to previous years. To keep this robust growth going long-term, manufacturers need certainty, and that will depend heavily on having sound trade policy and making temporary portions of the new tax code permanent. These numbers also help to cement more Federal Reserve rate action, largely based on improvements in the overall economy and labor market, with two more federal funds rate hikes expected in 2018.
Meanwhile, nonfarm payrolls rose at a healthy pace, up 213,000 in June, extending the gain of 244,000 seen in May and better than the consensus estimate of around 185,000. In addition, the unemployment rate ticked up from 3.8 percent in May, its lowest level since April 2000, to 4.0 percent in June. The higher unemployment rate, though, was largely a function of an increased participation rate, up from 62.7 percent to 62.9 percent. This suggests that more Americans are entering the labor market, which is encouraging. In a similar way, the so-called “real” unemployment rate, which includes discouraged, other “marginally attached” workers, edged up from 7.6 percent to 7.8 percent.
Turning to income growth, average weekly earnings for production and nonsupervisory employees in the manufacturing sector rose from $899.64 in May to $902.16 in June. That translated into a modest 3.0 percent increase over the past 12 months, up from $875.70 in June 2017.
In June, durable and nondurable goods manufacturers added 32,000 and 4,000 employees, respectively. The largest increases were in the transportation equipment (up 12,500, including 12,000 from motor vehicles and parts), fabricated metal products (up 7,100), computer and electronic products (up 5,100), food manufacturing (up 4,400), machinery (up 4,400), primary metals (up 2,900) and chemicals (up 1,900) segments. In contrast, there was declining employment in several segments in June, including apparel (down 1,800), miscellaneous nondurable goods (down 1,300), furniture and related products (down 800), miscellaneous durable goods (down 800), printing and related support activities (down 700) and textile product mills (down 300).
On the six-month anniversary of the passage of the Tax Cuts and Jobs Act, Congress’ top tax writer praised the National Association of Manufacturers (NAM) and President and CEO Jay Timmons in a Capitol press conference for the organization’s advocacy.
“Thank you to Jay for your leadership of America’s manufacturers,” said House Ways and Means Committee Chairman Kevin Brady (R-TX) as Timmons, House Speaker Paul Ryan (R-WI) and Treasury Secretary Steven Mnuchin looked on. “This pro-growth tax reform would not have occurred but for your leadership.”
Earlier that day, the NAM released its latest quarterly Manufacturers’ Outlook Survey in conjunction with the anniversary. The results were eye-popping: more than 95 percent of manufacturers surveyed were optimistic about their business outlook—the highest rating in all of the survey’s 20-year history.
Speaker Ryan and Chairman Brady echoed the record-setting results.
“Today there is record optimism among our nation’s manufacturers,” said Ryan. “Tax reform, to be blunt, is the game-changer our economy needed.”
“Our manufacturers are now armed with one of the most pro-growth tax codes in the world. And since tax reform was signed into law, over 70 percent of manufacturers have increased hiring and their workers’ wages due to tax reform,” said Brady.
Marlin Steel Wire Products President and Owner Drew Greenblatt and Jamison Door President and CEO John Williams, both NAM members, also participated in the press conference, along with workers from each company’s shop floor. The full event can be viewed here.
Conducted by NAM Chief Economist Chad Moutray, the Manufacturers’ Outlook Survey has surveyed the association’s membership of 14,000 large and small manufacturers on a quarterly basis for the past 20 years to gain insight into their economic outlook, hiring and investment decisions and business concerns.
The NAM releases these results to the public each quarter. Further information on the survey is available here.