ADP: Manufacturers Added 29,000 Workers in March, the Fastest Monthly Pace Since October 2014

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ADP reported that manufacturers added 29,000 workers in March, the fastest monthly growth in employment in the sector since October 2014. This once again illustrates the robustness of the labor market in light of strong increases in manufacturing activity and improvements in the overall outlook. Indeed, manufacturing business leaders have hired at a healthy rate since the end of 2016, averaging nearly 15,700 per month over the past 15 months. In contrast, manufacturing employment was more sluggish in 2016, illustrating the turnaround in the labor market since then. More importantly, continued strength in job growth is expected moving forward. Read More

ISM: Manufacturing Orders and Production Remained Strong in March Despite Some Easing

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The Institute for Supply Management (ISM) reported that manufacturing activity continued to expand solidly in March, even as it pulled back from the best reading since May 2004 in February. The ISM Manufacturing Purchasing Managers’ Index declined from 60.8 in February to 59.3 in March, but the data continue to indicate strength in the sector overall. Indeed, the indices for new orders (down from 64.2 to 61.9) and production (down from 62.0 to 61.0) have exceeded 60—a threshold suggesting robust expansions for both measures—since at least June 2017. Exports (down from 62.8 to 58.7) and employment (down from 59.7 to 57.3) growth also remain quite healthy despite some deceleration in the March figures. Exports, for instance, had expanded at the fastest rate since April 2011 in February, with international sales helping to fuel stronger overall demand. Read More

New Durable Goods Orders Rebounded, Up 3.1 Percent in February and 6.9 Percent Year-Over-Year

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The Census Bureau said that new durable goods orders rebounded, up 3.1 percent in February after falling by 3.5 percent in January. Much of that volatility stemmed from shifts in aircraft and parts sales, which can have large swings from month to month. The increase in February was also buoyed by stronger motor vehicles and parts orders (up 1.6 percent), and with solid gains in aircraft and automobiles, transportation equipment orders jumped 7.1 percent in February. Excluding transportation equipment, new durable goods orders increased 1.2 percent in February.

New durable goods orders have trended strongly higher over the course of the past 12 months, soaring 6.9 percent since February 2017. One of the more important measures in this release is new orders for core capital goods (or nondefense capital goods excluding aircraft), which can often be seen as a proxy for capital spending in the U.S. economy. In February, new orders for core capital goods were up 1.8 percent, but like the headline number above, the year-over-year pace was a very healthy 8.0 percent. Read More

Kansas City Fed: Manufacturing Outlook Remained Very Optimistic in March, but with Accelerating Costs

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The Kansas City Federal Reserve Bank reported that manufacturing activity continued to expand strongly in March, with the composite index of general business conditions unchanged at 17. Employment remained one of the bright spots in the latest survey (up from 23 to 26), with the index rising to a new all-time high in the survey’s 17-year history. This reflects an ever-tightening labor market, with the average workweek also widening to the best reading in seven years (up from 11 to 15). At the same time, production (down from 21 to 20) and shipments (down from 24 to 12) slowed a little in March, with new orders contracting for the first time since August 2016 (down from 16 to -1). Exports were also softer than desired (down from 2 to 1). Read More

The Federal Reserve Hiked Short-Term Rates as Expected—the First of the Powell Era

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As expected, the Federal Open Market Committee (FOMC) ended its March 20–21 meeting by hiking short-term rates by 25 basis points. This was the first FOMC meeting chaired by Jay Powell, and the Federal Reserve is likely to increase the federal funds rate at least two (and maybe three) more times in 2018. The economic projections of the participants were consistent with two more rate hikes this year, with the midpoint of the federal funds rate rising from 1.625 percent now to 2.1 percent by year’s end. It is worth noting that the Federal Reserve’s current outlook is more aggressive than it was in December for the next two years. Respondents now see the federal funds rate increasing to 2.9 percent and 3.4 percent by year’s end in 2019 and 2020, respectively, up from 2.7 percent and 3.1 percent three months ago. As always, the actual pace of rate hikes will hinge on incoming data.

The acceleration of rate hikes likely stems from expectations of faster growth, especially after passage of tax reform and continued signs of strength in the global economy. In December, the Federal Reserve forecasted 2.5, 2.1 and 2.0 percent growth for 2018, 2019 and 2020, respectively. That outlook has risen for real GDP growth of 2.7, 2.4 and 2.0 percent in the latest survey. The FOMC also anticipates that the unemployment rate will fall to 3.8 percent in 2018 and 3.6 percent in 2019. The December projections called for 3.9 percent in both years. Read More

Housing Starts and Permits Pulled Back in February but Were Still Encouraging Overall

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The Census Bureau and the Department of Housing and Urban Development reported that housing starts pulled back in February after notching the fastest pace since August 2007 in January. New residential construction declined 7.0 percent from an annualized 1,329,000 units in January to 1,236,000 units in February. Despite the deceleration in activity, there were some positives to note in the latest report. First, for the fifth straight month, housing starts exceeded 1.2 million units at the annual rate, which suggests that we might finally have breached and sustained that threshold of activity, which is promising. Second, single-family housing starts rose from 877,000 units in January to 902,000 units in February. It was only the second time since September 2007 that single-family construction activity has risen above 900,000 units, following the rate of 946,000 units in November. Read More

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