Monday Economic Report: Solid Gains in Production, Retail Sales in April Despite Concerns in Outlook

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 23, 2022

NAM Monday Economic Report Toplines: 

• Financial markets continue to process higher interest rates and the Federal Reserve’s attempts to control inflation. Indeed, the Federal Open Market Committee is likely to hike the federal funds rate by 50 basis points at each of its next two meetings (June 14–15 and July 26–27), and there are concerns about the Fed’s ability to navigate a “soft landing” in the outlook. Other uncertainties include the Ukrainian conflict and COVID-19-related shutdowns in China.

• Yet, industrial production and retail sales data continued to show resilience—at least for now—bucking the pessimism seen in financial markets and the media. While there is increasing talk of recession possibilities, a downturn is not inevitable, particularly if consumers and businesses continue to spend.

• For the record, while I continue to forecast economic growth in 2022 and 2023, the risk of a recession next year is higher than this year, with significant downside risks in the outlook (but also ongoing strengths).

• Manufacturing production rose 0.8% in April, expanding strongly for the third straight month, with the headline index notching its best reading since July 2008. In addition, manufacturing capacity utilization jumped to 79.2% in April, the highest reading since April 2007. Overall, manufacturing production has risen 5.8% year-over-year, with 4.6% growth relative to February 2020’s pre-pandemic pace.

• Retail sales grew 0.9% in April, buoyed by rebounding motor vehicles and parts spending and solid growth in most categories of consumer activity. At the same time, gasoline station sales—which are expressed in nominal terms—fell 2.7% in April, pulling back somewhat after jumping 9.6% in March.

• Retail spending has soared 8.2% year-over-year, consistent with the reopening of the economy and with pent-up demand. Consumer spending remains a bright spot, even as Americans cope with higher prices.

• Yet, there were also signs that economic growth was slowing, with ongoing challenges and higher interest rates dampening activity. Manufacturing surveys from the New York and Philadelphia Federal Reserve Banks for May were both notably weaker, for instance.

• New residential construction activity edged down 0.2% to 1,724,000 units at the annual rate in April, but with single-family housing starts dropping 7.3% to 1,100,000 units to a six-month low. On a year-over-year basis, new housing starts have increased 14.6%, but with single-family activity up a more modest 3.7% since April 2021.

• The housing starts data provided mixed comfort. Multifamily starts, which are volatile from month to month, were stronger. Yet, the cooling in single-family construction activity would indicate that sharply higher mortgage rates, inflation and issues surrounding affordability have had a negative impact on the market.

• This would be consistent with builder sentiment, with respondents to the May NAHB survey the least optimistic in their outlook since June 2020. (See below.)

• Existing home sales fell 2.4% to 5.61 million units at the annual rate in April, the slowest pace since June 2020. On a year-over-year basis, existing home sales fell 5.9% from 5.96 million units in April 2021. With that said, inventories—while rising over the past few months—remain low. The median sales price was $391,200 in April, an all-time high and up 14.8% from $340,700 one year ago.

• Kentucky created the most net new manufacturing jobs in April, adding 6,000 workers, with Florida generating 16,300 workers in the sector since February 2020, the greatest of any state since the pandemic.

• For the week ending May 7, there were 1,317,000 continuing unemployment insurance claims in the U.S. economy, the lowest level since the week ending Dec. 27, 1969.
• READ FULL REPORT