ADP: Manufacturers Added 12,000 Workers in January, Extending the Strong Job Gains Seen in the Sector in 2017

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ADP said that manufacturers added 12,000 workers in January, extending the strong job gains in the sector seen last year. It was the eighth straight month of employment growth. Manufacturing business leaders have hired at a robust rate over the course of the past year, with the labor market tightening on improved economic outlook and healthy growth in activity. The sector has hired an average of 18,290 per month in 2017—a significant turnaround from 2016’s more-sluggish pace. We expect continued strength in job growth moving forward. Read More

Dallas Fed: Manufacturing Sentiment Expanded in January at Fastest Rate Since December 2005

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The Dallas Federal Reserve Bank reported that manufacturing activity expanded in January at its fastest rate since December 2005, with the Texas economy continuing to rebound with robust growth. The composite index of general business conditions increased from 29.7 in December to 33.4 in January. While the underlying data remained encouraging, they were also quite mixed. Growth in shipments (up from 21.5 to 27.5) and capital expenditures (up from 19.0 to 20.0) both accelerated in January, but new orders (down from 30.1 to 25.5), production (down from 32.8 to 16.8), capacity utilization (down from 26.3 to 14.5), employment (down from 20.4 to 15.2) and hours worked (down from 23.3 to 13.4) slowing somewhat despite continuing to expand at healthy rates.

Moving forward, manufacturing leaders in Texas were very positive about the next six months. The forward-looking measure jumped from 40.9 to 44.5, a level not seen in just over 13 years (December 2004). More than half of those completing the survey expect demand, production, shipments and hiring to increase over the coming months, with 43.6 percent planning to spend more on capital investments. One downside is a notable pickup in cost pressures, with elevated paces of growth for both raw material prices (down from 52.1 to 44.0) and wages and benefits (up from 44.2 to 56.9). On the latter, nearly 60 percent see compensation costs rising over the next six months, with the labor market continuing to tighten.

Personal Spending Was Up Strongly in December, with Lowest Saving Rate Since September 2005

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The Bureau of Economic Analysis said that personal spending was up 0.4 percent in December, extending the robust 0.8 percent gain seen in November. Americans have continued to increase their purchasing, making personal consumption expenditures one of the bright spots in the U.S. economy. Over the past 12 months, personal spending has risen by 4.6 percent, off just slightly from the 4.7 percent pace observed in the prior report. In December, durable goods spending increased by 0.7 percent, but nondurable goods were off by 0.2 percent. On a year-over-year basis, goods spending for durable and nondurable goods were increased at very healthy rates, up 5.5 percent and 4.7 percent, respectively, since December 2016.

Likewise, the savings rate fell to its lowest rate since September 2005, down from 2.5 percent in November to 2.4 percent in December. The savings rate has trended lower since peaking at 4.1 percent in February. It is yet another illustration that Americans have accelerated their purchasing—something helped to boost holiday spending and provide a significant boost to real GDP growth in the fourth quarter.   Read More

Strong Aircraft Sales Lifted New Durable Goods Orders by 2.9 Percent in December

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The Census Bureau said that new durable goods orders rose 2.9 percent in December, extending the 1.7 percent gain seen in November. The increase in both months stemmed largely from strong defense and nondefense aircraft and parts sales, jumping 55.3 percent and 15.9 percent in December, respectively. It is important to note that aircraft orders can be highly volatile from month to month. Excluding transportation equipment, new durable goods orders were up 0.6 percent in December, increasing for the sixth straight month. Read More

U.S. Economy Grew 2.6 Percent in the Fourth Quarter: Solid Growth in Spending, but Pulled Lower by Net Exports, Inventories

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The Bureau of Economic Analysis said that the U.S. economy grew by an annualized 2.6 percent in the fourth quarter, according to preliminary data. This was somewhat lower than the consensus estimate of around 3 percent, and it represented an easing from the 3.1 percent and 3.2 percent gains seen in the second and third quarters, respectively. Overall, the latest report found solid growth in consumer, business and government spending, but headline growth was pulled lower by both net exports and inventory spending. To illustrate the impact of those various components, real GDP growth would have been 4.35 percent absent the drag from net exports and inventories, which subtracted 1.8 percentage points from the top-line growth figure. Personally, I would not be surprised to see the growth rate revised up in the coming weeks.

In 2017, real GDP increased by 2.3 percent, up from 1.5 percent in 2016. Since the end of the Great Recession, the U.S. economy has expanded by 2.2 percent on average. Moving forward, we anticipate 3.0 percent growth in 2018—or something close to that, the consensus right now is around 2.7 percent. I continue to believe that there is upward potential in that outlook for next year, especially as firms increase their investments. Passage of comprehensive tax reform and other pro-growth measures should help to stimulate economic activity, hopefully allowing us to reach 3.0 percent annual growth for the first time since 2005. Read More

Richmond Fed: Manufacturing Activity Continued to Expand at Decent Rates to Start the New Year

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The Richmond Federal Reserve Bank said that manufacturing activity in its district continued to expand in January, even as growth eased for the second straight month. The composite index for the general business assessment declined from 20 in December to 14 in January, pulling back once again from November’s all-time high in the survey’s 34-year history (30). The bottom line is that manufacturers in the region see relatively strong expansions in activity as 2018 begins, continuing the trend of decent growth experienced for much of 2017. New orders (unchanged at 16) expanded at the same pace on net in January as seen in December, but other key measures decelerated somewhat. This included shipments (down from 24 to 15), capacity utilization (down from 16 to 13), employment (down from 20 to 10) and wages (down from 8 to 2). Wages (up from 22 to 24) picked up, expanding rather strongly for the month—another sign of continued tightening in the labor market. Read More