Monday Economic Report: Manufacturing Production & Capacity Utilization 2016-2017
Monday, November 20, 2017
Posted by: Alyce Ryan
Written By: Chad Moutray, Ph.D., CBE, Chief Economist, National Association of Manufacturers
AICC, through its membership in the Council of Manufacturing Associations, is pleased to present the "Monday Economic Report" from the National Association of Manufacturers (NAM).
There were several reports out last week highlighting strength in the U.S. economy. Along those lines, manufacturing production expanded robustly in October, up 1.3 percent, its fastest monthly pace of growth since April. In October, durable and nondurable goods production rose by 0.4 percent and 2.3 percent, respectively, with the latter rebounding from significant declines in activity in August and September in the chemicals and petroleum and coal products segments due to Hurricanes Harvey and Irma. As a result, manufacturing production has risen by 2.5 percent over the past 12 months, the best year-over-year rate since August 2014. In a similar manner, manufacturing capacity utilized soared from 75.5 percent in September to 76.4 percent in October, a reading not seen since May 2008.
At the same time, manufacturing activity in the Kansas City, New York and Philadelphia Federal Reserve Bank districts continued to expand at rather robust paces despite a little softening in each of the most recent surveys. The Kansas City and New York reports reflected some easing from multiyear highs in the previous release, with still-high rates of expansions for new orders, shipments and employment in all of the regional Fed surveys so far in November. More importantly, manufacturers continued to be very optimistic in their outlook for the next six months. In terms of downsides in the current data, those completing the latest surveys once again cited challenges in attracting talent, and raw material costs have trended higher in recent months. (More on that topic below.)
In addition to manufacturing, there were also healthy figures for the housing and retail markets. For instance, new housing starts jumped 13.7 percent to 1,290,000 units at the annual rate in October, its fastest pace in 12 months. That is encouraging news, and yet, it is worth noting that the bulk of that increase stemmed from better multifamily activity, which can often be highly volatile from month to month. Multifamily housing starts soared from 302,000 to 413,000 in this release, the best reading since January. New single-family construction was also higher, up from 833,000 to 877,000, an eight-month high. Single-family starts have largely trended in the right direction, averaging 841,300 year-to-date in 2017 versus 778,200 in the same time period in 2016. Housing permits and builder optimism numbers suggest that residential activity should continue to improve in the coming months, which is promising.
Consumer spending has been a bright spot in the economy, but there was more caution in the data in the summer months than we might have preferred. The good news is that Americans have opened their pocketbooks more since then. Indeed, retail spending edged higher in October, up 0.2 percent, building on September’s strong 1.7 percent gain. On a year-over-year basis, retail sales have risen 4.6 percent since October 2016, off just slightly from 4.8 percent in the previous report, which was a six-month high. There has been robust growth in motor vehicle and parts sales in the past two months, up 4.6 percent and 0.7 percent in September and October, respectively, with the segment benefiting from hurricane-related replacements. Excluding automobiles, retail sales were up 0.1 percent in October, with year-over-year growth of 4.3 percent.
Meanwhile, producer prices for final demand goods and services rose by 0.4 percent in October for the second straight month. Overall, producer prices have increased 2.7 percent since October 2016, up from 2.5 percent year-over-year last month and a pace not seen since February 2012. Raw material costs have accelerated over the course of the past 12 months, as the year-over-year rate was 1.2 percent one year ago. Nonetheless, core producer prices—which exclude food, energy and trade services—continue to be modest at 2.2 percent, up from 2.1 percent in September. For comparison purposes, core producer prices were 1.6 percent year-over-year in October 2016.
Similar trends exist for consumer prices, which edged up by 0.1 percent in October. The consumer price index increased 2.0 percent year-over-year in October, down from 2.2 percent in September. In addition, core consumer prices, which exclude food and energy costs, have risen 1.8 percent over the past 12 months, inching up slightly from 1.7 percent in the prior release. As such, overall pricing pressures remain mostly under control for now, even with some acceleration. Nonetheless, the Federal Open Market Committee is still likely to raise short-term interest rates at its December 12–13 meeting, mostly on improvements in the macroeconomy and from general tightening in labor markets.
This week, there will be new data on manufacturing and housing activity to digest before the Thanksgiving holiday. It is hoped that durable goods orders for October will build on the gains in both August and September. Other highlights this week include new data on consumer confidence, existing home sales, leading indicators and the Chicago Federal Reserve’s National Activity Index.