NAM Monday Economic Report - Dec 24, 2018
Friday, January 4, 2019
Posted by: Alyce Ryan
The Manufacturing Outlook in 2018
Was the Highest on Record, but Activity Has Softened in the Latest Data
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).
The Weekly Toplines:
- In the fourth quarter NAM Manufacturers’ Outlook Survey, 88.7 percent of respondents felt either somewhat or very positive about their own company’s outlook, down from 92.5 percent in the third quarter. While that represents the second straight easing in confidence from the all-time high reading in the second quarter (95.1 percent), the headline index averaged 92.4 percent in 2018, the highest level in the survey’s 20-year history, surpassing the 2017 average of 91.8 percent.
- Manufacturers continue to cite the inability to find talent, especially in a tight labor market, as their top concern for the fifth consecutive survey. Other major concerns included increased raw material costs, trade uncertainties, rising health care and insurance costs, and transportation and logistics costs.
- New durable goods orders bounced back, up 0.8 percent in November after dropping by 4.3 percent in October. Excluding transportation, though, new durable goods orders declined by 0.3 percent in November and core capital goods spending—a proxy for capital spending in the economy—was off by 0.6 percent. More encouragingly, new durable goods orders have risen by a healthy 5.3 percent over the past 12 months, or 4.9 percent year-over-year with transportation excluded.
- Manufacturing surveys from the Kansas City, New York and Philadelphia Federal Reserve Banks also show some softening in activity in December, with each slowing to growth rates not seen in at least a year and a half. With that said, each of these district reports continuing growth and a strong outlook, with hiring remaining solid and input costs continuing to increase briskly.
- With that in mind, the Federal Open Market Committee (FOMC) voted to hike short-term interest rates at the conclusion of its December 18–19 meeting, as expected. While some analysts and politicians were calling for a pause in monetary actions in light of softer economic data, the Federal Reserve continued to see strong economic growth, especially in consumer spending and labor markets, necessitating the move.
- New Federal Reserve economic projections suggest that FOMC participants predict slower growth in 2019. Those officials appear to predict two rate hikes in 2019 and one increase in 2020. This would seem to indicate one less hike in each year than seen in the September projections—hence, a somewhat more “dovish” stance. Yet, financial markets were hoping for even fewer hikes.
- Housing starts rose 3.2 percent in November, largely on a sizable gain in multifamily activity, which can be highly volatile from month to month. On a more disappointing note, single-family housing starts fell to an 18-month low. Affordability and workforce issues continue to challenge residential construction, with home builder optimism also falling to its lowest level in more than two years in November.
- Personal spending increased by 0.4 percent in November, slowing somewhat from the very robust 0.8 percent gain in October. Overall, American consumers have continued to spend strongly—an important signal for the economy at the all-important holiday season. In fact, personal spending has risen 4.7 percent over the past 12 months. The saving rate registered 6.0 percent in November, its lowest point since March 2013 and another indication that spending has accelerated strongly in recent months.