NAM Monday Economic Report - July 6, 2015

Still, that does not mean that manufacturers are out of the woods yet, with activity expanding at a slower pace than desired. For instance, the export index in the ISM release has contracted in four of the past six months. Much of this is due to the strong dollar and continued weaknesses abroad, which have dampened international sales. Indeed, new factory orders have fallen in 9 of the past 10 months, largely on those headwinds. With that said, the May weakness stemmed mostly from reduced aircraft sales, which can often be quite volatile from month to month, and the broader data were marginally higher.

Meanwhile, the Dallas Federal Reserve Bank’s survey has contracted each month so far in 2015, mainly due to lower crude oil prices. Activity decreased across the board in its report, albeit with some stabilization in the rate of decline. On a more favorable note, manufacturers in the Texas district expect stronger new orders, production, shipments, employment and capital spending over the next six months. If true, that will hopefully bode well for company performance in the second half of this year.

On the hiring front, manufacturers added 4,000 net new workers in June, slightly lower than the 7,000 additional employees added in May. While positive, it continues a softer-than-desired pace for the first half of 2015, particularly over the past five months. The sector added an average of just 6,167 workers per month in the first half of this year, a much slower rate of hiring than observed in the second half of 2014, which averaged 20,667 per month. Yet, in the larger economy, nonfarm payrolls increased by 223,000 in June. This was largely in line with consensus expectations. Nonfarm payrolls have now exceeded 200,000 in 14 of the past 16 months, averaging 250,750 over that time frame. At the same time, unemployment dropped to 5.3 percent, its lowest level since 2008, and the participation rate fell to 62.6 percent, the least since October 1977.

In other news, consumer confidence and construction each provided some encouraging headlines last week. First, the Conference Board reported that consumer sentiment jumped to 101.4 in June, matching its level in March and coming off of two months of relative softness. This measure of consumer confidence remains slightly below the post-recessionary peak observed in January (103.8), but overall, Americans’ perceptions about the economy have improved from where they were one year ago. And then there is manufacturing construction activity, which has soared by a whopping 70.1 percent over the past 12 months. Private, nonresidential manufacturing construction spending rose sharply, up 6.2 percent in May to an annualized $89.69 billion. This represents a significant shift upward over the past year in construction activity for the sector, up from $52.73 billion in May 2014 and $65.68 billion in December 2014. Moreover, the current level marks yet another all-time high for this data series, suggesting that manufacturers are confident enough in their outlook to warrant additional investments.

That is definitely a positive way to end this week’s report, with only a few indicators coming out over the next couple days. The biggest highlight this week will come tomorrow, with the release of international trade numbers for May. Given the challenging environment for exports right now, this report will be watched closely, particularly for signs of progress in terms of manufactured goods’ demand abroad. In addition, the Global Manufacturing Economic Update will come out on Friday. Other releases to watch for include the latest data on consumer credit, job openings and wholesale trade.

Chad Moutray, Chief Economist, National Association of Manufacturers