Economic Report: Manufacturing Wages and Salaries Rose a Record 4.9% Year-Over-Year in Q1

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 –May 2, 2022

Weekly NAM Economic Toplines:

• Private manufacturing wages and salaries jumped 1.5% in the first quarter. That increase translated into 4.9% growth over the past 12 months, the fastest pace in the history of the data series, which dates to the beginning of 2001.

• The U.S. economy shrank 1.4% at the annual rate in the first quarter, contracting for the first time since the second quarter of 2020. However, the data suggest some underlying strength in the U.S. economy that might not be obvious in the headline number.

• If one were to only include personal consumption expenditures and fixed investment, for instance, real GDP growth would have been 3.1% at the annual rate in the first quarter. The continued reopening of the economy and pent-up demand, especially in the service sector, remain encouraging. Yet, other factors—including government spending, inventories and net exports—were simply enough to outweigh those positives.

• Overall, the current forecast is for 3.0% growth in real GDP in 2022, suggesting that the economy should rebound in the coming quarters but also reflecting a reduced outlook for growth stemming from the Russian invasion of Ukraine and higher inflation. There also continues to be downside risks in the outlook with notable uncertainties related to the situation in Ukraine and attempts to slow pricing pressures.

• The personal consumption expenditures deflator rose 0.9% in March, the fastest monthly gain since January 2021. Food and energy prices increased 1.4% and 11.8%, respectively. Excluding food and energy prices, the PCE deflator increased 0.3% in March, the same pace as in February.

• Overall, the PCE deflator has risen 6.6% year-over-year, the greatest increase since January 1982. Core inflation has increased 5.2% over the past 12 months, pulling back from 5.3% growth in February, which was the strongest pace of inflation since April 1983.

• These data will put continued pressure on the Federal Reserve to tackle inflation. The Federal Open Market Committee is likely to increase the federal funds rate by 50 basis points at this week’s meeting, building on the 25 basis-point hike at its March 15–16 meeting. Another 25 or 50 basis-point increase is anticipated at the June 14–15 meeting. The Federal Reserve will also start reducing its balance sheet, with an announcement likely coming at this week’s meeting, as well.

• New orders for durable goods rose 0.8% March, but defense and nondefense aircraft and parts sales, which can be highly volatile from month to month, both decreased sharply. Motor vehicles and parts orders rebounded, up 5.0% in March. Excluding transportation equipment, new durable goods orders increased 1.1% to a record $191.3 billion in March.

• Core capital goods (or nondefense capital goods excluding aircraft)—a proxy for capital spendthiring in the U.S. economy—rose 1.0% from $80.0 billion in February to a record $80.8 billion in March, with 10.2% growth year-over-year.

• As with other indicators, these data continue to illustrate the resilience of the manufacturing sector in the face of significant challenges with supply chain bottlenecks, worker shortages, soaring costs and COVID-19.

• The three manufacturing sentiment surveys out last week from the Dallas, Kansas City and Richmond Federal Reserve Banks provided mixed results but with expanding activity in each. Pricing pressures remained elevated, but respondents remained positive in their outlook.

• The U.S. goods trade deficit soared from $106.35 billion in February to a record $125.32 billion in March, according to preliminary figures. These data continued to be skewed by supply chain disruptions, higher petroleum prices and stronger economic growth in the U.S. relative to other markets.

• In March, goods imports jumped from $264.29 billion to $294.63 billion, an all-time high, which outpaced the increase for goods exports, up from $157.95 billion to a record $169.31 billion.

• New single-family home sales tumbled 8.6% from 835,000 units at the annual rate in February to 763,000 units in March, a four-month low. Affordability issues, higher mortgage rates, supply chain problems and workforce shortages continued to challenge the housing market.

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