The Kansas City Federal Reserve Bank reported that manufacturing activity continued to expand strongly in February, building on solid growth seen over the past year. The composite index of general business conditions increased from 16 in January to 17 in February, a four-month high. Many of the key underlying data points also reflected faster growth for the month, including new orders (up from 14 to 16), production (up from 16 to 21), shipments (up from 14 to 24), employment (up from 18 to 23) and the average workweek (up from 2 to 11). Forty percent of respondents said new orders increased in February, with 24 percent citing reduced sales. At the same time, exports slowed somewhat but remained positive for the third straight report (down from 6 to 2). Read More
The IHS Markit Flash U.S. Manufacturing PMI rose from 55.5 in January to 55.9 in February, registering the best reading since October 2014 and boosted by accelerating new orders (up from 56.7 to 57.8) and employment (up from 55.0 to 55.8). Similarly, the index for future output (up from 66.9 to 71.0) was just shy of December’s reading (71.1), which was nearly a two-year high. More importantly, this suggests very healthy growth in production over the next six months. At the same time, current output (down from 56.2 to 56.1) and exports (down from 52.9 to 52.1) eased slightly in the February survey but continued to grow at a promising pace. On the downside, input prices picked up in the latest survey (up from 58.6 to 61.9), with costs expanding at rates not seen since December 2012. Read More
The National Association of Home Builders (NAHB) and Wells Fargo reported that the Housing Market Index (HMI) was unchanged at 72 in February. The headline measure remained not far from December’s reading, which was the best since July 1999. More importantly, homebuilders are very optimistic about the next six months, with the index for expected sales of single-family homes rising from 78 to 80, its best reading since June 2005. NAHB Chief Economist Robert Dietz added, “With ongoing job creation, increasing owner-occupied household formation, and a tight supply of existing home inventory, the single-family housing sector should continue to strengthen at a gradual but consistent pace.” The release cited the “pro-business political climate” for the recent uptick in sentiment, but also cautions about supply constraints, including “shortages of labor and building material price increases.”
To put the current numbers in perspective, the HMI stood at 58 and 65 in February 2016 and February 2017, respectively. Readings over 50 suggest that more homebuilders are positive than negative in their economic outlook. The HMI has exceeded 50 in every month since July 2014, and it has exceeded 60—which would signify robust growth—for 18 straight months. In February, sentiment strengthened in the Midwest but was somewhat softer (but still quite positive) in the Northeast and West.
The Federal Reserve Bank of Philadelphia said that manufacturing activity accelerated once again in February, continuing to expand at healthy rates in the first two months of 2018. The composite index of general business activity rose from 22.2 in January to 25.8 in February. To illustrate just how much this measure has reflected strong growth of late, the composite index averaged a rather robust 26.5 over the past 15 months. (It averaged just 1.1 in the 15 months prior to that.) In February, the data were mixed. New orders (up from 10.1 to 24.5) and hiring (up from 16.8 to 25.2) both improved, but shipments (down from 30.3 to 15.5) and the average workweek (down from 16.7 to 13.7) slowed, even as all of these indices indicated solid gains in February. Read More
The Federal Reserve said that manufacturing production was unchanged in January for the second straight month. As such, output in the sector essentially has taken a pause at the beginning of 2018, but we would anticipate that breather to be short-lived. Indeed, we would expect manufacturing production to rise by 2.1 percent in 2018, up from 1.7 percent in 2017. In terms of the latest data, manufacturing production rose by 1.8 percent since January 2017, slowing from the more robust 2.3 percent pace seen in November, which likely represented a rebound in the aftermath of several hurricanes. Much like the headline number, manufacturing capacity utilization was flat in January’s report, unchanged at 76.2 percent. Read More
Manufacturing activity in the New York Federal Reserve Bank’s district eased somewhat in February but remained strong overall. In the latest Empire State Manufacturing Survey, the composite index of general business conditions declined from 17.7 in January to 13.1 in February. While this was the fourth straight deceleration in the headline index, off from the three-year high of 28.8 in October, the pace of expansion has remained decent overall, averaging 26.9 over the past 14 months. In February, the underlying data were mixed. New orders (up from 11.9 to 13.5), employment (up from 3.8 to 10.9) and the average workweek (up from 0.8 to 4.6) each picked up in the latest data, but shipments (down from 14.4 to 12.5) and inventories (down from 13.8 to 4.9) slowed a little.. Read More
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.
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