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NAM Weekly Economic ReportMay 11, 2015
Once again, there was evidence last week that significant headwinds have dampened activity in the manufacturing sector. The sector added just 1,000 net new workers in April, marking the third consecutive month with soft hiring. The data suggest that challenges from a strong dollar, slowing growth abroad, lower crude oil prices, residual effects from the West Coast ports slowdown, a cautious consumer and weather have combined to take their toll on the economy, at least for the time being.
Other data points also reflect this weaker trend. Labor productivity in the manufacturing sector fell 1.1 percent in the first quarter, declining for the second straight quarter. This was largely due to a 1.2 percent decrease in output in the sector, increasing unit labor costs by 2.7 percent. Similarly, the most recent factory orders release was disappointing despite a 2.1 percent increase in sales in March. New manufactured goods orders were unchanged for the month when you exclude transportation equipment, suggesting softness in the broader market. On the positive side, the report reflected rebounding motor vehicle sales and strong aircraft orders.
Meanwhile, the U.S. trade deficit widened substantially, jumping to its highest level in nearly six and a half years. The data continue to show a sharp reduction in goods exports over the past few months from the averages experienced last year, and lower crude oil prices have decreased both exports and imports of petroleum. Exchange rate challenges and sluggish international demand have been major obstacles for the sector, dampening export growth and serving as a drag on the overall economy. Year-to-date manufactured goods exports have declined 3.8 percent in 2015, according to TradeStats Express, relative to the first three months of 2014. As such, the worse-than-expected trade data could revise real GDP growth for the first quarter into negative territory, down from the original estimate of 0.2 percent growth.
There were some encouraging signs last week, notably in the labor market. Nonfarm payrolls rose 223,000 in April, and the unemployment rate fell to 5.4 percent. The U.S. economy has generated employment growth of at least 200,000 in 13 of the past 14 months, averaging 253,000 per month over that time frame. In addition, manufacturers have averaged 14,750 new workers per month since the end of 2013, even with weaker data over the past three months. We hope the better hiring data in the overall economy is a harbinger of a return to healthy employment gains (i.e., in the 15,000 per month range) in the manufacturing sector across the rest of this year.
Next week, the highlight from a manufacturing perspective will be the latest industrial production figures on Friday from the Federal Reserve. After softer data the past four months, we will be looking for any signs of a rebound. The Empire State Manufacturing Survey will also come out on that day, providing our first look at regional sentiment for May. Another report that will be closely watched will be April retail sales on Wednesday, with analysts looking to build on better data in March. Beyond these releases, other highlights include updates on consumer sentiment, job openings, producer prices and small business optimism.
Chad MoutrayChief EconomistNational Association of Manufacturers
Monday, May 4Factory Orders and Shipments
Tuesday, May 5International Trade Report
Wednesday, May 6ADP National Employment ReportProductivity and Costs
Thursday, May 7Consumer Credit
Friday, May 8BLS National Employment Report
Monday, May 11None
Tuesday, May 12Job Openings and Labor Turnover Survey NFIB Small Business Survey
Wednesday, May 13Retail Sales
Thursday, May 14Producer Price Index
Friday, May 15Industrial ProductionNew York Fed Manufacturing SurveyUniversity of Michigan Consumer Sentiment
Summaries of Last Week's Economic Indicators
In the larger economy, nonfarm private businesses added 169,000 employees on net in April, slightly below the 175,000 gain in March. Nonfarm payroll growth remained below 200,000 for the second consecutive month, ending 13 straight months of hiring of 200,000 workers or more. As such, April’s report was a bit disappointing, with the consensus estimate of 225,000 for the month.
In April, the following sectors saw the largest job gains: trade, transportation and utilities (up 44,000); professional and business services (up 34,000); construction (up 23,000); and financial activities (up 7,000). Small and medium-sized businesses (those with fewer than 500 employees) contributed all but 5,000 of the increase in nonfarm private business employment gains in April.
Yet, manufacturers have averaged 14,750 workers per month since the end of 2013, or nearly 17,850 if you exclude the past three months. I continue to anticipate a pickup in hiring moving forward (i.e., in the 15,000 per month range). My forecast is for manufacturing employment of 12.45 million by the end of 2015, up from 12.32 currently.
In April, nondurable goods employment rose by 2,000, with durable goods firms losing 1,000 workers. The largest jobs gains were in transportation equipment (up 3,600, including 6,000 from motor vehicles and parts), petroleum and coal products (up 3,100), furniture and related products (up 1,400) and fabricated metal products (up 1,000). In contrast, machinery (down 5,200), food manufacturing (down 2,400), apparel (down 1,400) and nonmetallic mineral products (down 1,100) were among the sectors with declining employment.
Average weekly earnings in the manufacturing sector edged slightly lower, down from $1,026.18 to $1,024.90. On a year-over-year basis, average weekly earnings have increased 1.5 percent. The average number of hours worked also slipped a bit, from 40.9 to 40.8 hours, with average overtime hours down from 3.3 to 3.2 hours.
In the larger economy, nonfarm payrolls increased by 223,000 in April, improving on the relatively weak 85,000 gain in March. On the positive side, the United States has generated monthly nonfarm payroll growth of at least 200,000 in 13 of the past 14 months, averaging 253,000 per month over that time frame. In addition, the unemployment rate dropped from 5.5 percent to 5.4 percent. Therefore, we continue to see movement in the right direction in the overall labor market, and we hope this is a harbinger of good things to come for manufacturing employment as well.
Across the past 12 months, consumer credit has increased 6.9 percent, with the bulk of that growth stemming from nonrevolving credit lines. Nonrevolving credit, which includes auto and student loans, increased 8.2 percent over that time frame. In contrast, revolving credit, which includes credit cards and other credit lines, has risen 3.3 percent year-over-year.
Americans began taking on more revolving debt, such as credit cards, in March for the first time since December. Revolving credit outstanding increased 5.9 percent at the annual rate, rebounding from declines of 3.3 percent in both January and February. Meanwhile, nonrevolving debt rose 7.9 percent in March.
Looking specifically at the March data, durable goods orders excluding transportation rose 0.4 percent, with nondurable goods sales down 0.3 percent. For durable goods, the largest sales increases were in computers and electronic products (up 7.2 percent), motor vehicles and parts (up 3.4 percent) and furniture and home furnishings (up 0.9 percent). In contrast, orders declined for machinery (down 1.4 percent), electrical equipment and appliances (down 0.9 percent) and primary metals (down 0.8 percent).
Meanwhile, manufactured goods shipments increased 0.5 percent in March, with a decline of 0.3 percent if transportation equipment numbers were excluded. Transportation shipments rose 4.6 percent, buoyed by automotive and truck sales. Otherwise, the data were mixed. At the same time, the longer-term trend continued to be somewhat worrisome. Even with increases in the past two months, factory shipments have trended lower over the past six months, down from $503.7 billion in September to $482.2 billion in March.
Petroleum flows have also contributed to this shift, with lower crude oil prices reducing overall values. Petroleum exports declined from $8.27 billion to $7.70 billion, or down from the 2014 average of $10.29 billion. Imports also fell, down from $16.47 billion to $15.37 billion. This was down significantly from the $24.89 billion average in 2014.
Looking more closely at the goods data for March, exports were generally higher for the month (although, as mentioned before, they were lower than last year). There were increased goods exports for nonautomotive capital goods (up $1.47 billion), automotive vehicles and parts (up $792 million), foods, feeds and beverages (up $332 million) and industrial supplies and materials (up $317 million). Consumer goods exports were down $1.70 billion for the month.
Meanwhile, goods imports were up significantly in March, rebounding from a slower February, as noted above. Consumer goods (up $9.01 billion), nonautomotive capital goods (up $3.98 billion) and automotive vehicles and parts (up $2.67 billion) accounted for the bulk of the monthly gain.
The net result of all of these data points has been a challenging year so far for manufacturers abroad. Using seasonally adjusted data from TradeStats Express, year-to-date manufactured goods exports fell 3.8 percent in 2015 from the levels observed in the first three months of 2014. Moreover, exports were lower to Canada (down 4.2 percent), China (down 3.0 percent) and Japan (down 5.2 percent) so far this year. Exports to Mexico (up 0.4 percent) and the United Kingdom (up 15.5 percent) were higher year-to-date, with exports to Germany flat.
In the first quarter, durable goods firms fared the worst, with labor productivity and output down 2.3 percent and 2.7 percent, respectively. In contrast, productivity growth for nondurable goods businesses remained essentially flat for the quarter, with output up 0.5 percent. Each had higher unit labor costs, up 3.7 percent and 2.0 percent for durable and nondurable goods manufacturers, respectively. We hope this development will improve in the coming quarters, as lower unit labor costs help to keep manufacturers more competitive globally.
In the larger economy, nonfarm labor productivity decreased 1.9 percent in the first quarter, building on the 2.1 percent decline in the fourth quarter. Output fell 0.2 percent, and unit labor costs increased 5.0 percent on a 6.2 percent jump in real hourly compensation costs. Overall, the nonfarm business sector has continued to experience sluggish productivity growth, with output per hour for all persons up just 0.9 percent in 2013 and 0.7 percent in 2014, pushing unit labor costs up in each of the past two years.