NAM Monday Economic Report - November 9, 2015

There were two measures of manufacturing activity released last week, and both reflected current headwinds in the sector. The Institute for Supply Management’s Manufacturing Purchasing Managers’ Index found that activity had stalled for the second straight month. The headline index edged marginally down from 50.2 in September to 50.1 in October, or just shy of being neutral in both months. At the same time, the data did show a pickup in both new orders and production this month, providing some hope that activity might pick up moving forward. Yet, exports contracted for the eighth time so far in 2015, albeit with some easing in the pace of decline in October, and employment and inventories were also negative for the month.

Meanwhile, new factory orders declined 1.0 percent, falling for the second straight month, down from $471.0 billion in August to $466.3 billion in September. Sales for both durable and nondurable goods were lower for the month, down 1.2 percent and 0.8 percent, respectively. On a year-over-year basis, new orders have declined 6.9 percent since September 2014, down from $500.8 billion. However, much of the decrease for durable goods in September stemmed from the highly volatile transportation equipment sector, led by sharp declines in nondefense aircraft sales since the Paris Air Show in June as levels normalized somewhat. Durable goods orders excluding transportation declined by a more modest 0.3 percent.

The strong dollar and weaker growth abroad have combined to dampen international demand for manufactured goods. Overall, this report continues to show how much manufacturers have struggled from global headwinds through the first three quarters of this year. According to updated data on TradeStats Express through the third quarter, manufactured goods exports have fallen 5.1 percent year-to-date in 2015 relative to the same time period in 2014. Nonetheless, the U.S. trade deficit narrowed in September on an increase in goods exports and a decrease in goods imports. In addition, the petroleum trade deficit fell to $5.6 billion, with petroleum imports at their lowest level since May 2004.

Finally, private manufacturing construction spending pulled back a little in September, even as activity remained strong overall. The value of construction put in place in the sector fell to $87.45 billion in September, and it has continued to ease since reaching an all-time high in May at $89.65 billion, which was an all-time high for the series. Still, manufacturing construction totaled $61.64 billion in September 2014, representing a substantial increase of 41.1 percent. The large increases in manufacturing construction spending show that leaders remain confident enough in their outlook to warrant additional investments, which is encouraging. Much of that gain stemmed from investments made in the chemical sector, which continues to benefit from cost advantages in the energy sector.

This week, we will get a sense of how confident consumers are as we head into the all-important holiday season. On Friday, there will be new data on retail sales and consumer sentiment, both of which have been softer than desired in recent data. On Thursday, there will be new figures on job openings, which have been strong of late. The increase in postings has given us some encouragement that hiring might pick up at some point moving forward. Other indicators to watch this week include the most recent data on producer prices and small business optimism.

Chad Moutray, Chief Economist, National Association of Manufacturers