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
“Manufacturing gross output increased from $6.228 trillion in the fourth quarter to $6.347 trillion in the first quarter, a new all-time high.”
The Federal Reserve reported that manufacturing production rebounded strongly in June after pulling back in May due to a fire at an auto supplier. Output in the sector increased 0.8 percent in June after falling 1.0 percent in May. So far in 2018, manufacturing production has seesawed from month to month, but up 1.0 percent over that time frame. Over the past 12 months, production in the sector has risen a respectable 1.9 percent, up from 1.7 percent in the previous release. My forecast for 2018 is for manufacturing production to increase 2.2 percent, which would indicate an uptick in output in the second half of this year. Similarly, manufacturing capacity utilization rose from 75.0 percent in May to 75.5 percent in June, which remains not far from April’s rate (75.8 percent), which was the best reading since August 2015.
In June, durable and nondurable goods manufacturing increased 1.6 percent and 0.1 percent, respectively. The largest increase came from motor vehicles and parts, which soared by 7.8 percent in June after dropping by 8.6 percent in May. Beyond automotive, other manufacturing sectors with increased production for the month included computer and electronic products (up 1.5 percent), wood products (up 1.2 percent), aerospace and miscellaneous transportation equipment (up 1.0 percent), fabricated metal products (up 0.9 percent), textile and product mills (up 0.9 percent), machinery (up 0.7 percent) and petroleum and coal products (up 0.6 percent), among others.
In contrast, output declined for apparel and leather (down 3.1 percent), nonmetallic mineral products (down 1.1 percent), furniture and related products (down 0.5 percent), miscellaneous durable goods (down 0.5 percent), plastics and rubber products (down 0.3 percent) and food, beverage and tobacco products (down 0.2 percent).
Meanwhile, total industrial production also recovered in June, up 0.6 percent after declining 0.5 percent in May. Mining output increased 1.2 percent in June, but utilities production fell 1.5 percent. Over the past 12 months, industrial production has risen 3.8 percent, up from 3.2 percent in the prior release and the fastest year-over-year pace since July 2014. Mining and utilities have grown 12.9 percent and 5.0 percent year-over-year, respectively. In addition, capacity utilization ticked up from 77.7 percent to 78.0 percent. That was just shy of the 78.2 percent reading in April, which was the best rate since February 2015.
The Bureau of Labor Statistics reported that job openings in the manufacturing sector pulled back in May from April’s pace, which was the best reading since January 2001. Manufacturers posted 441,000 job openings in May, down slightly from 452,000 in April. In the latest figures, there were fewer job openings in both the durable (down from 281,000 to 272,000) and nondurable (down from 171,000 to 169,000) goods sectors. More importantly, the number of manufacturing job postings has remained highly elevated even with the easing in May, exceeding 400,000 for the fifth consecutive month (and in nine of the past 12 months). Monthly job openings in the sector have averaged 430,400 year-to-date in 2018, up from averages of 341,250 and 389,667 for all of 2016 and 2017, respectively. Moving forward, continued strength in job openings is anticipated in the coming months.
Net hiring among manufacturers remains encouraging, even with some slower activity over the past few months. There were 346,000 hires in the sector in May, down from 358,000 in April. Hiring eased a bit for both durable (down from 213,000 to 202,000) and nondurable (down from 145,000 to 143,000) goods manufacturers, but the numbers have still trended in the right direction. At the same time, total separations—including layoffs, quits and retirements—declined from 343,000 to 333,000. As a result, net hiring (or hires minus separations) edged down from 15,000 in April to 13,000 in May. It was the 13th consecutive monthly increase in manufacturing net hiring, averaging 18,538 over that time frame.
Meanwhile, job openings for nonfarm payroll businesses declined from April’s all-time high, dropping from 6,840,000 in April to 6,638,000 in May. It remained the second-highest reading, however, and job openings in the U.S. economy continued to exceed the number of people looking for work (6,065,000 in May and 6,564,000 in June). This is a sign of a very tight labor market and helps to explain why workforce recruitment and retention are such large challenges right now.
On the six-month anniversary of the passage of the Tax Cuts and Jobs Act, Congress’ top tax writer praised the National Association of Manufacturers (NAM) and President and CEO Jay Timmons in a Capitol press conference for the organization’s advocacy.
“Thank you to Jay for your leadership of America’s manufacturers,” said House Ways and Means Committee Chairman Kevin Brady (R-TX) as Timmons, House Speaker Paul Ryan (R-WI) and Treasury Secretary Steven Mnuchin looked on. “This pro-growth tax reform would not have occurred but for your leadership.”
Earlier that day, the NAM released its latest quarterly Manufacturers’ Outlook Survey in conjunction with the anniversary. The results were eye-popping: more than 95 percent of manufacturers surveyed were optimistic about their business outlook—the highest rating in all of the survey’s 20-year history.
Speaker Ryan and Chairman Brady echoed the record-setting results.
“Today there is record optimism among our nation’s manufacturers,” said Ryan. “Tax reform, to be blunt, is the game-changer our economy needed.”
“Our manufacturers are now armed with one of the most pro-growth tax codes in the world. And since tax reform was signed into law, over 70 percent of manufacturers have increased hiring and their workers’ wages due to tax reform,” said Brady.
Marlin Steel Wire Products President and Owner Drew Greenblatt and Jamison Door President and CEO John Williams, both NAM members, also participated in the press conference, along with workers from each company’s shop floor. The full event can be viewed here.
Conducted by NAM Chief Economist Chad Moutray, the Manufacturers’ Outlook Survey has surveyed the association’s membership of 14,000 large and small manufacturers on a quarterly basis for the past 20 years to gain insight into their economic outlook, hiring and investment decisions and business concerns.
The NAM releases these results to the public each quarter. Further information on the survey is available here.
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
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
The Institute for Supply Management (ISM) said that manufacturing activity continued to expand modestly in April, even as it pulled back for the second straight month from February’s best reading since May 2004. The ISM Manufacturing Purchasing Managers’ Index (PMI) declined from 60.8 in February to 59.3 in March to 57.3 in April, its lowest level since July 2017. Softer production (down from 61.0 to 57.2), exports (down from 58.7 to 57.7) and employment (down from 57.3 to 54.2) growth help to explain the softer headline number in April. The exports figure eased for the second consecutive month, down from the February rate, which had been the fastest since April 2011.
Despite some weakening in other measures, new orders (down from 61.9 to 61.2) decelerated slightly but remained robust overall, which was encouraging. To illustrate just how strong demand has been in the manufacturing sector, it was the 12th straight month with the new orders index at 60 or higher—a threshold that would suggest robust sales growth. 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.
With ever-stronger economic growth, manufacturers report accelerated input costs. Indeed, prices for raw materials (up from 78.1 to 79.3) have remained highly elevated, with the measure at a level not seen in seven years. More than 61 percent of manufacturing respondents said that their costs had risen in April, with just 2.6 percent suggesting that they were lower. This reflects a rebound in some commodity costs, even as overall pricing pressures continue to be largely modest, at least for now.
In other news, inventories (down from 55.5 to 52.9) expanded in April for the fourth straight month, even as the pace of growth slowed from February’s near eight-year high. More than anything, the recent growth in inventories is consistent with the healthy growth in overall production.