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Chad Moutray

U.S. Economy Shows Resilience, Grows 3.2% in First Quarter of 2019

By | General | No Comments

Despite a multitude of challenges—slowing global growth, the partial government shutdown, trade policy uncertainties, a strong U.S. dollar—the U.S. economy showed its resilience in the first quarter, growing a solid 3.2 percent at the annual rate.

This was the strongest first quarter of growth since 2015. The data were buoyed by robust contributions from service-sector consumption, exports and state and local government spending, with notable drags on growth from durable goods spending and housing. Weaker consumer purchases stemmed largely from sharp declines in motor vehicles and parts activity, among other categories.

Nonetheless, the larger story here remains the strength in the top-line number, which exceeded consensus estimates and was significantly better than what was predicted just a few weeks ago. As such, the U.S. economy should now expand by around 2.7 percent in 2019—an improvement from what I might have forecasted prior to this release. As a reminder, real GDP rose 2.9 percent in 2018, or 3.1 percent from Q4:2017 to Q4:2018. The was the best year-over-year rate since 2005.

In the first quarter figures, goods consumption declined 0.7 percent at the annual rate, weighed down by a whopping 5.3 percent decrease in durable goods spending (see the motor vehicles discussion above) but helped by a 1.7 percent increase for nondurable goods activity. I would expect automotive sales to improve moving forward, which should help boost second quarter growth. At the same time, nonresidential fixed investment rose a modest 2.7 percent, largely on intellectual property spending. Equipment and structures investment was soft, but business spending on inventories added 0.65 percentage points to headline growth.

Meanwhile, goods exports rose an annualized 4.7 percent in the first quarter, with goods imports off 4.4 percent. Therefore, net exports added 1.03 percentage points to real GDP growth, the strongest contribution since the second quarter of 2018.

The Markets Are Freaking Out about the Economy. Let’s Just Take a Breath and Relax.

By | Economy, Shopfloor Economics | No Comments

Recently, with slower economic growth globally, some financial markets across the world have waned and shown volatility, largely on the belief that this global cooldown might be a harbinger of a possible recession. Based on my analysis, while business leaders have grappled with a number of uncertainties of late, I believe the American economy—and the manufacturing sector—is still poised to continue growing into 2019 and beyond.

Yes, yields have moved lower as a result of the economy softening—especially in Europe and China—but central banks have also tried to quell drastic concerns and have stressed patience. In the United States, for instance, the Federal Reserve has done a complete turnaround since December in its stance toward monetary policy, shifting from the likelihood of two to three rate hikes in 2019 to the more dovish view of possibly no rate increases this year, with some analysts even pushing for rate cuts.

This has led to a lot of volatility in yield curves in recent days. Some of these curves, such as the spread between the 10-year bond and the federal funds rate, have inverted, raising worries about the risk of recession. Yet, it is important to keep things in perspective. The more-important yield curve—the spread between the 10-year and 2-year bond yields—has not inverted. Since World War II, the U.S. economy has entered a recession only if this yield curve goes negative, occurring within 12 to 18 months of inverting.

As far as inversion is concerned, the 10-year Treasury yield has drifted sharply lower over the past few weeks, down from 2.76 percent on March 1 to 2.39 percent yesterday, the lowest point since December 2017. But other rates have also drifted lower—and the current spread between 10-year and 2-year bonds is 0.17 percent. In addition, the Federal Reserve has said it does not intend to invert the yield curve, and it is not expected to raise short-term rates in 2019. Again, my view is that the U.S. economy and manufacturing activity are both slowing but are not expected to decline this year. Indeed, while the risk of a recession is not insignificant, it is also not imminent. I would peg the risk of a recession currently at 20 to 25 percent, rising to 40 percent by 2020.

Yesterday, the Bureau of Economic Analysis revised down real GDP growth in the fourth quarter from 2.6 percent at the annual rate to 2.2 percent. This was largely expected, especially given some of the weaker retail sales and housing data in December. However, it did not change the larger narrative: the U.S. economy grew 2.9 percent in 2018 (and an even better 3.1 percent from the fourth quarter of 2017 to the fourth quarter of 2018). Moreover, economic growth last year registered the best reading since 2005 on a year-over-year basis, largely due to strength in consumer and business spending, but with drags from residential construction and net exports.

Moving forward, I predict 2.4 percent growth for 2019, recognizing that the global economy is in fact softening and there are lingering political uncertainties surrounding trade and other policy areas. There are upside and downside risks in the economic outlook, but the most important takeaway I have is this: I, along with many other economists, expect growth to be positive this year. That point seems to be missed in recent reporting.

Don’t Panic About The February Jobs Report. Manufacturing Still Has 428,000 Open Jobs To Fill.

By | Shopfloor Main, Shopfloor Policy | No Comments

Manufacturers added just 4,000 workers in February, the industry’s slowest monthly pace of job growth since July 2017 and pulling back from a gain of 21,000 jobs in January. The overall nonfarm payroll data were also disappointing, from a solid increase of 311,000 in January to 20,000 in February. Weather might have negatively impacted employment growth in the month, and economists were largely expecting a pullback after the strong figure in January (especially in the aftermath of the partial government shutdown). The consensus estimate was for around 180,000 jobs created, though, not the 20,000 the Bureau of Labor Statistics reported. I would not be surprised to see an upward revision in the next release or, at a minimum, a sharp rebound.

With that in mind, it is important to not read too much into these data, as the labor market continues to be strong overall. The U.S. economy has generated a robust 209,080 jobs, on average, each month over the past 12 months, with manufacturers hiring more than 20,000 workers per month, on average, since February 2017. In addition, the unemployment rate dropped from 4.0 percent in January to 3.8 percent in February, continuing to be near 50-year lows. In addition, the so-called “real unemployment rate” declined from 8.1 percent to 7.3 percent in this report, a rate not seen since March 2001. There were 12,834,000 manufacturing workers in February—the most workers in the sector since December 2008—with almost 1.4 million employees added since the end of the Great Recession.

Manufacturers are experiencing a tight labor market that is not expected to go away anytime soon, as businesses face concerns about finding the skilled workers they’ll need to continue growing. In the most recent NAM Manufacturers’ Outlook Survey (released earlier this week), 9 in 10 manufacturers expressed a positive outlook for their business—hitting nine consecutive quarters of record optimism—but the inability to attract and retain workers continues to be the top concern for the sixth consecutive quarter. There are nearly half a million available manufacturing jobs in the United States.

And according to a study from Deloitte and The Manufacturing Institute—the education and workforce partner of the NAM—manufacturers will need to fill 4.6 million jobs over the next decade. That’s why the NAM is working hard, in conjunction with the Trump administration through its American Workforce Policy Advisory Board, to develop cutting-edge solutions to address this workforce shortage. Our country’s continuing economic prosperity will depend on developing the tomorrow’s workforce today, and manufacturers are committed to leading the way toward that end.

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

By | Economy, Shopfloor Economics, Shopfloor Main | No Comments

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

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