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economic outlook Archives - Shopfloor

GDP Grows at Fastest Rate Since 2014, with Tax Reform Powering Manufacturers Forward

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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

The Federal Reserve Hiked Short-Term Rates Again as Expected, Signaled Four Increases in 2018

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As expected, the Federal Open Market Committee (FOMC) ended its June 12–13 meeting by hiking short-term rates by 25 basis points. This action—the second increase so far in 2018—was widely expected, with markets already pricing it in. More importantly, the Federal Reserve’s economic projections signal that there could be four hikes in the federal funds rate this year, up from a consensus estimate of around three. With the Federal Reserve’s action, the target range for the federal funds rate is now 1.75 to 2 percent. The projections show that range rising to 2.4 percent by the end of 2018 and 3.1 percent in 2019. The latter would indicate three hikes next year. With that said, the FOMC will hinge future interest rate increases on incoming data. Read More

ISM: Manufacturing Activity Rebounded in May, with Continued Strength in Demand

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The Institute for Supply Management (ISM) reported that manufacturing activity rebounded in May, with continued strength in demand. The ISM Manufacturing Purchasing Managers’ Index rose from 57.3 in April to 58.7 in May. The underlying data increased, including new orders (up from 61.2 to 63.7), production (up from 57.2 to 61.5) and employment (up from 54.2 to 56.3). The index for new orders has now been 60 or greater for 13 straight months, illustrating the robustness of sales in the sector across the past year. The sample comments tend to echo that finding, with respondents noting healthy growth in activity and a promising outlook, even as they cite some trade worries. Along those lines, exports eased a bit (down from 57.7 to 55.6), but expanded modestly overall. 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

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

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