Monday Economic Report - June 13, 2016

A Publication of the National Association of Manufacturers

MONDAY ECONOMIC REPORTNAM/IndustryWeek Survey of Manufactures Business Outlook by Quarter, 2012-2014

With only a handful of new data points last week, financial markets were able to catch a slight breather before a slew of new indicators come out this week. Indeed, there will be many data points to absorb, giving us another chance to gauge the health of the U.S. economy. For manufacturers, this includes industrial production and regional surveys from the New York and Philadelphia Federal Reserve Banks. Manufacturing output rebounded in April, so we will be looking to see if that can be sustained in the new May data.

At the same time, the NAM will release the second quarter results for the Manufacturers’ Outlook Survey, which will reflect our members’ assessments of the current economic environment. The write-up of this survey will also feature a discussion for some special questions on regulatory compliance costs, health insurance, tax reform and international trade. Other highlights include the latest figures on consumer and producer prices, housing starts and permits, retail sales, small business optimism and state employment.

Of course, the largest headlines this week will come from the Federal Reserve. The Federal Open Market Committee (FOMC) will meet June 14–15, and it had been expected to raise short-term interest rates at that meeting. However, given the disappointing jobs numbers for May, it is likely that the FOMC will now shift its thinking on the normalization of rates to its July 26–27 or September 20–21 meetings. The Federal Reserve’s statement will be closely parsed for clues about participants’ thinking on rates and the economic outlook.

Speaking of the May employment report, the latest figures for manufacturing job openings provide an interesting juxtaposition to more sluggish hiring data. In fact, job postings in the sector soared to an all-time high, up from 337,000 in March to 415,000 in April. That was enough to surpass the prior peak of 366,000 achieved in July 2015. In contrast, net hiring remained negative for the third straight month, illustrating once again that businesses continue to hold back on employment growth, at least for now, even as job openings jump to new highs. We hope the better job openings data translate into improved (and positive) net hiring moving forward.

For its part, the latest consumer credit figures seem to indicate an increased willingness for Americans to take on revolving debt, including credit cards, when making purchases. At the same time, consumers remain cautious, according to the University of Michigan and Thomson Reuters, particularly in their outlook for the future. Still, the data were consistent with real consumer expenditures increasing 2.5 percent in 2016.

Beyond those releases, there were two reports out last week that marked down growth estimates for this year. First, economists with the National Association for Business Economics (NABE) lowered their outlook for 2016 in their latest quarterly survey. Respondents predict that the U.S. economy will grow 1.8 percent in 2016, down from 2.2 percent in the March survey. Consumer and business spending were both seen easing this year, with residential investment remaining one of the bright spots. Industrial production should continue to struggle, according to NABE, even as automotive sales were anticipated to grow by 17.3 million units, the same strong pace as last year. I predict manufacturing production growth of at least 1.0 percent in 2016.

The second report noting decelerating growth came from the World Bank. Global real GDP should expand 2.4 percent in 2016, down from the 2.9 percent estimate in January. The World Bank forecasts 1.9 percent growth in the United States in 2016, down just slightly from its 2.0 percent outlook earlier this year. For more on international trends, see the latest Global Manufacturing Economic Update, which was released on June 9.

Chad Moutray
Chief Economist
National Association of Manufacturers

Economic Indicators

Last Week's Indicators (Summaries Appear Below)

Monday, June 6
NABE Business Outlook Survey

Tuesday, June 7
Consumer Credit
Productivity and Costs (Revision)

Wednesday, June 8
Job Openings and Labor Turnover Survey

Thursday, June 9

Friday, June 10
University of Michigan Consumer Sentiment

This Week's Indicators

Monday, June 13

Tuesday, June 14
NFIB Small Business Survey
Retail Sales

Wednesday, June 15
FOMC Monetary Policy Statement
Industrial Production
NY Fed Manufacturing Survey
Producer Price Index

Thursday, June 16
Consumer Price Index
NAHB Housing Market Index
NAM Manufacturers’ Outlook Survey
Philadelphia Fed Manufacturing Survey

Friday, June 17
Housing Starts and Permits
State Employment Report

Summaries for Last Week's Economic Indicators

Consumer Credit
The Federal Reserve Board reported that U.S. consumer credit outstanding grew 4.5 percent at the annual rate in April, slowing from the more torrid pace of 9.6 percent in March. Total consumer credit was $3.602 trillion, with $951.5 billion in revolving credit and $2.650 trillion in nonrevolving credit. Nonrevolving credit, which includes auto and student loans, increased 5.4 percent in April, down from 8.2 percent in March. At the same time, revolving credit, which includes credit cards and other credit lines, slowed from 13.3 percent growth in March to 2.1 percent in April.

Across the past 12 months, consumer credit has increased 6.2 percent, slowing a bit from the 6.5 percent year-over-year rate in both December and March. Nonrevolving credit has also slowed over that time frame, down from 7.0 percent year-over-year in December to 6.5 percent in this latest release. Meanwhile, revolving credit has largely picked up year-to-date, likely suggesting consumers are more willing to take on credit debt in their purchases. While the year-over-year rate of growth for revolving credit declined from 6.0 percent in March to 5.5 percent in April, it has accelerated from the 5.2 percent pace in December and the 3.5 percent rate one year ago. 

Job Openings and Labor Turnover Survey
The Bureau of Labor Statistics reported that manufacturing job openings soared to a new all-time high, up from 337,000 in March to 415,000 in April. That was enough to surpass the prior peak of 366,000 achieved in July 2015. Indeed, the manufacturing job opening rate jumped from 2.7 percent of the total employment in the sector in March to 3.3 percent in April. Both durable (up from 167,000 to 213,000) and nondurable goods (up from 170,000 to 202,000) firms posted more jobs for the month. The nondurable goods figure reached a new all-time high, much like the headline number, with openings for durable goods manufacturers at a 12-month high. I suspect that the April data will be an outlier when all is said and done; yet, it does provide some optimism for faster hiring growth moving forward.

With that said, net hiring remains a challenge for now. Manufacturers hired 273,000 workers in April, up from 251,000 in March. There were increases among durable (up from 145,000 to 156,000) and nondurable goods (up from 106,000 to 117,000) firms. At the same time, total separations, which include quits, layoffs and retirements, dropped from 288,000 to 279,000, a three-month low. Each of those trends were encouraging, but net hiring (or hiring minus separations) remained negative for the third straight month, albeit with some stabilization in April. Net hiring was off by 6,000 workers in April, an improvement from the loss of 37,000 employees on net in March. We hope the better job openings data translate into improved (and positive) net hiring moving forward.

In the larger economy, nonfarm job openings accelerated from 5,670,000 to 5,788,000. This equaled the all-time high reached in July 2015. The increase in April was buoyed by more openings for education and health services; financial activities; government; information; manufacturing; and trade, transportation and utilities. Beyond job openings, net hiring in the overall economy was soft in this report, down from 194,000 in March to 104,000 in April.  

NABE Business Outlook Survey
NABE economists have lowered their outlook for 2016 in the NABE’s latest quarterly survey. Respondents predict that the U.S. economy will grow 1.8 percent in 2016, down from 2.2 percent in the March survey. At the same time, they expect real GDP growth of 2.3 percent in 2017, unchanged from the prior release. One of the larger drivers of the weaker-than-desired growth rates for this year was business fixed investment, which was not seen growing in this survey, down from 4.7 percent growth at the annual rate six months ago and 2.5 percent in the prior estimate. This is consistent with the cautiousness seen in other economic indicators.

Consumer spending was also seen slowing somewhat, down from an annualized 3.0 percent growth in December to 2.6 percent now, even as it continued to expand modestly. At the same time, residential investment should remain a bright spot, increasing 9.6 percent this year, up from 8.3 percent in the prior survey. Housing starts were predicted to grow to 1.21 million units by year’s end, slowing from the 1.24 million outlook three months ago.

Industrial production numbers were not encouraging, with economists predicting a decline of 0.6 percent in 2016. This represented a deceleration in forecasts for industrial production, down from 2.2 percent and 0.8 percent in the prior two surveys, respectively. Industrial production includes manufacturing, mining and utilities, and the negative outlook stems largely from sharply lower mining output. I am currently predicting manufacturing production growth of at least 1.0 percent in 2016. Beyond that figure, business economists completing this survey also anticipate light vehicle sales of 17.3 million units, down from a prediction of 17.6 million in March.

In other questions, 57 percent of respondents felt that uncertainty from the U.S. election process would negatively impact their real GDP forecasts for 2016, with 34 percent saying it would have a neutral effect. Meanwhile, economists expect two rate hikes from the Federal Reserve in 2016.

Productivity and Costs (Revision)
The Bureau of Labor Statistics reported that manufacturing labor productivity grew 1.3 percent in the first quarter, revised lower from the prior estimate of 1.9 percent growth. It continued to represent a rebound from the 1.2 percent decline in output per worker during the fourth quarter. Output expanded 0.6 percent in the first quarter, but with real hourly compensation up 2.8 percent, unit labor costs for the sector increased 1.1 percent. This was a reversal, as unit labor costs were estimated originally to have decreased 1.2 percent. The other interesting revision in this release was the manufacturing hourly compensation data for the fourth quarter, which jumped 7.9 percent at the annual rate. For 2015 as a whole, hourly compensation in the sector rose 2.5 percent.

In the first quarter, labor productivity for nondurable goods manufacturers rose 4.2 percent, with output up 1.6 percent. With the number of hours worked down 2.5 percent, unit labor costs for nondurable goods firms declined 0.2 percent. In contrast, labor productivity for durable goods businesses dropped 0.6 percent, falling for the second straight quarter, with output down 0.2 percent. Yet, hours worked edged up 0.4 percent, and unit labor costs rose 2.2 percent. In 2015, unit labor costs for durable and nondurable goods manufacturing entities rose 2.4 percent and 2.5 percent, respectively. In general, lower unit labor costs on a quarter-by-quarter basis help manufacturers become more competitive globally, so recent trends have not been helpful.

In the larger economy, nonfarm labor productivity fell 0.6 percent in the first quarter, declining for the second straight report but improving from the original estimate of a 1.0 percent decrease. Output increased 0.9 percent, with unit labor costs jumping 4.5 percent. In 2015, output was up 2.9 percent for the year as a whole, with unit labor costs up 2.3 percent.

University of Michigan Consumer Sentiment
The University of Michigan and Thomson Reuters reported that consumer confidence ebbed slightly in June in preliminary data. The Index of Consumer Sentiment dropped from 94.7 in May to 94.3 in June. With that said, the past two months were the best since the reading of 96.1 in June 2015, suggesting both an improvement from April’s dismal 89.0 level and lingering anxieties across the past 12 months. Indeed, consumer cautiousness has led to weaker-than-desired—but still modest—spending growth over much of that time frame. Along those lines, Richard Curtin, the chief economist for this survey, said that the data were consistent with real consumer expenditures increasing 2.5 percent in 2016.

The underlying data for June were mixed. Respondents were more upbeat about current economic conditions (up from 109.9 to 111.7), but they were less certain in their longer-term economic outlook (down from 84.9 to 83.2).

Questions or Comments?

Contact Chief Economist Chad Moutray at

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