Monday Economic Repot: Manufacturing Production Rose to Best Level Since December 2018

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).

By Chad Moutray, Ph.D., CBE – December 20, 2021

NAM Weekly Economic Toplines: 

Manufacturing production rose 0.7% in November, improving to the best level since December 2018. Manufacturing capacity utilization increased to 77.3% in November, also the strongest since December 2018. Overall, manufacturing production has risen 4.6% year-over-year, with 2.0% growth relative to February 2020’s pre-pandemic pace. Total industrial production rose 0.5% in November, the strongest reading since September 2019. On a year-over-year basis, industrial production has increased 5.3%.   The IHS Markit Flash U.S. Manufacturing PMI slowed for the fifth straight month in December, down to a 12-month low. Manufacturers in the U.S. continued to cite supply chain bottlenecks and workforce shortages as significant challenges to growth, and the data reflect those challenges. Input price growth pulled back from a record pace, remaining very elevated.  Manufacturing surveys from the Kansas City, New York and Philadelphia Federal Reserve Banks reported mixed findings in December. However, the surveys continued to reflect expanding activity and an upbeat outlook in each district despite lingering challenges. Inflationary pressures remained paramount, with price growth near record paces. In the Philly Fed region, hiring grew at the fastest rate on record. Over the past 12 months, producer prices for final demand goods and services jumped 9.7% (seasonally adjusted), the largest increase on record for a series dating to November 2009. In addition, core producer prices increased 6.9% year-over-year in November, also an all-time high. Considering “elevated levels of inflation,” the Federal Open Market Committee accelerated the pace that it plans to taper its asset purchases, as expected. The Federal Reserve will double the pace of tapering starting in January, reducing their asset purchases by $20 billion and $10 billion, respectively. This would effectively end asset purchases by the end of March. The FOMC left short-term interest rates unchanged for now, leaving the target federal funds rate at zero to 25 basis points. Yet, in economic projections, the median federal funds rate would seem to suggest three rate hikes in 2022, with three more increases in 2023. In my view, the FOMC might start to increase short-term rates as soon as the May 3–4, 2022, meeting. After falling in three of the prior four months, new residential construction activity jumped 11.8% to 1,679,000 units at the annual rate in November, the best reading since March. Housing construction has been challenged this year by rising construction costs, affordability issues and difficulties in finding workers, making the latest rebound an encouraging sign. Despite ongoing concerns, builders remained optimistic about growth over the coming months, with sentiment edging higher in the latest NAHB Housing Market Index. Retail sales increased 0.3% in November, slowing from a 1.8% gain in October but rising for the fourth straight month. The data continue to reflect Americans’ willingness to open their wallets over the past year as the economy has rebounded. Retail spending has soared 18.2% over the past 12 months, or 16.5% with gasoline stations and motor vehicle and parts sales excluded. Indiana created the most net new manufacturing jobs in November, adding 5,000 workers. That state also generated the most employment growth post-pandemic, adding 11,100 jobs since Feb. 2020. Nebraska had the lowest unemployment rate in the U.S. at 1.8%. READ WEB VERSION OF REPORT