A Publication of the National Association of Manufacturers
The Bureau of Labor Statistics reported that manufacturers added 25,000 workers in December, extending the strong hiring gains in the sector seen throughout much of 2017. Manufacturing employment rose by 16,333 per month on average in 2017—quite a turnaround from the loss of 16,000 workers per month in 2016. This is a sign that firms have stepped up their hiring as a result of a stronger economic outlook and increased demand and production activity. Indeed, since the end of the Great Recession, manufacturing employment has risen by 1,086,000 workers, with 12.54 million employees in the sector in this report. That is the highest level of manufacturing employment since January 2009.
Overall, manufacturing was one of the bright spots in the latest jobs report, with nonfarm payrolls up just 148,000 in December. That was below the consensus estimate of 200,000, and softness in other components, especially retail trade (down 20,300), pulled the headline number lower. Nonetheless, the labor market remains strong overall, with nonfarm payroll employment averaging 171,250 per month in 2017. That is a decent pace, even with some easing from the average rate of 186,667 in 2016. The unemployment rate remained unchanged at 4.1 percent for the third straight month, continuing to be its lowest level since December 2000.
Beyond improvements in the global economy and overall activity, manufacturing optimism has risen to all-time highs largely due to a pro-business environment, including passage of comprehensive tax reform. Moving forward, manufacturers expect policymakers to address other initiatives, such as infrastructure, to keep the momentum going. Along those lines, the Institute for Supply Management’s (ISM) Manufacturing Purchasing Managers’ Index rose to its best reading since September’s 13-year high. Healthy gains in new orders boosted the headline ISM number, with that measure increasing at its fastest pace since January 2004. It was the seventh consecutive month that sales and production indices in the report exceeded 60, which would signify very spirited growth in demand and output in the sector.
New factory orders rose 1.3 percent in November. The boost to orders in the latest data included large jumps in nondefense and defense aircraft and parts sales. Overall, new factory orders, which have struggled mightily over the past few years, have trended largely in the right direction more recently, up nearly 8.0 percent since November 2016, or 7.6 percent excluding transportation equipment sales. More importantly, core capital goods—or nondefense capital goods excluding aircraft—edged down 0.2 percent in November, but, much like the headline numbers, there was a healthy gain of 8.0 percent over the past 12 months. This is important as core capital goods are often seen as a proxy for capital spending in the U.S. economy.
The trade picture has also been more encouraging, with the global economic outlook also improving notably of late. U.S.-manufactured goods exports increased more than 4 percent year to date through November 2017—a welcome turnaround from the declines in international demand in both 2015 and 2016. Nonetheless, the U.S. trade deficit rose to $50.50 billion in November, the highest level since January 2012. In the latest figures, the increase in the trade deficit stemmed mostly from a jump in goods imports that was more than enough to offset an increase in goods exports. At the same time, service-sector exports rose to a new all-time high ($65.66 billion), with the service-sector trade surplus edging up to $20.40 billion.
One negative in the data last week was private manufacturing construction spending, which pulled back in November by 1.6 percent after inching up in both September and October. The value of construction put in place in the sector declined to $60.46 billion in November, its lowest level since September 2014. Construction spending in the sector has averaged $65.86 billion year to date in 2017, down from the average of $74.61 billion in 2016 as a whole. While manufacturing construction has trended largely higher over the past few years, activity has moved lower since achieving the all-time high of $82.13 billion in May 2015. Nonetheless, a turnaround in construction activity is expected in the coming months, especially in light of the improved outlook of late.
This week, manufacturers will get a fresh look at manufacturing confidence regionally with survey data from the Philadelphia Federal Reserve Bank. It will be the first read on sentiment in the sector for 2018, which it is hoped will build on the strong gains in 2017. Likewise, the National Federation of Independent Business will release its latest Small Business Optimism Index figures for December, with respondents reporting their highest levels of enthusiasm in November in more than 30 years. In addition, the Census Bureau will provide retail spending numbers for the end of the year, including the all-important holiday sales. Even before that release, consumers had increased their purchases quite robustly, with retail sales up 5.8 percent year-over-year in November.