Here is the summary for this week’s Monday Economic Report:
Policymakers’ ability to solve the country’s fiscal problems has once again come into focus with the government shutdown and the looming debt ceiling deadline. Manufacturers are eager for our leaders to solve these short-term differences and move on to address the nation’s long-term challenges. In the most recent NAM/IndustryWeek Survey of Manufacturers, nearly 85 percent of respondents said that they want the President and Congress to come to a long-term budget deal that effectively tackles the deficit and debt. In addition, three-fourths expressed the need to slow the growth of entitlement spending. Once these structural issues are solved, the country can begin to adopt pro-growth measures like those laid out in the NAM’s Growth Agenda that will allow the manufacturing sector and other businesses to expand and flourish. Instead, we are stuck in a budgetary impasse that creates more uncertainty and harbors increased frustrations with the political process.
With the government closed, statistical agencies will not be able to release new data. Last week, that meant that we did not get the latest jobs numbers as well as updates on construction spending and factory orders. There was some consternation about this, including stories in the USA Today and The Hill. Assuming the shutdown lasts through this week, we will not receive new data for international trade, job postings, producer prices, retail sales and wholesale trade. Private sources will only partially fill the vacuum left by the absence of government data. For instance, last week, Automatic Data Processing (ADP) announced its job estimates, with the Institute for Supply Management (ISM) releasing its closely watched Purchasing Managers’ Index (PMI) data. This week, the Federal Reserve will provide consumer credit data, and the Manufacturers Alliance for Productivity and Innovation (MAPI) will release its latest survey.
In terms of the numbers that were out last week, they tended to confirm the trends across the past few weeks. The ISM data show a clear uptick in manufacturing activity during the third quarter, with an average PMI of 55.8 in July, August and September. That is a significant improvement from a sector that essentially stalled during the second quarter, with the sharp acceleration in sales being a major factor. The third-quarter average for the new orders index was a surprisingly strong 60.7, up from 51.0 in the second quarter. Many regional surveys backed up this analysis, with rebounds in the latest reports from ISM-Chicago and the Chicago and Dallas Federal Reserve Banks.
One area that continues to lag behind is hiring. In many sentiment surveys, employment growth has been up only modestly. For the most part, manufacturers were positive about sales and output over the next 6 to 12 months, with some pickup predicted in hiring. The NAM/IndustryWeek survey predicted 1.1 percent growth on average in hiring in the manufacturing sector over the next year; yet, roughly 60 percent of respondents did not plan to change their employment levels at all. With that as context, it was perhaps not surprising that the ADP employment report continued to reflect disappointing jobs growth for manufacturing, up by just 1,000 in September and down by 12,000 year to date. Nonfarm payrolls also grew by a less-than-stellar 166,000 workers, suggesting a persistent hesitance to bring on new workers in the economy extending beyond the manufacturing sector.
Chad Moutray is the chief economist, National Association of Manufacturers.