Global Economy, Competitiveness, Government Policy
It’s a fitting time of year for miracles, and the Tax Cuts and Jobs Act, passed by Congress today fits that description. Granted, the first major tax overhaul in more than three decades is not a panacea. It’s come under an increasing amount of criticism from many factions.
No one should be concerned that the Purchasing Managers’ Index (PMI) pulled back from an unrealistic 60.8% in September to a still strong 58.7% in October. The September reading from the Institute for Supply Management (ISM) has to be treated as an outlier and interpreted against the inevitable data distortions created by two devastating hurricanes. Hurricane Harvey, in particular, ravaged a manufacturing epicenter at a time when energy-related output is growing as a share of U.S. industrial output. ISM survey respondents in October noted weak business conditions and raw material shortages due to the hurricanes. The aftermath of these terrible storms is going to linger in the manufacturing picture for a while.
As has often been the case in recent years, the monthly U.S. employment report provides a glimmer of light in a gray picture. A net gain of 222,000 payroll jobs in June markedly exceeded the expectations of analysts who projected that slow economic growth would have some impact on employment gains.
I’m not sure I would call it fireworks, but the June manufacturing report from the Institute for Supply Management (ISM) certainly contains some buoyant signs for the U.S. factory sector. The overall Purchasing Mangers’ Index rose by nearly three percentage points to 57.8%, its highest level of what has been an impressive post-August 2016 run.
Yet again, the labor market is the one strong player in an otherwise lackluster economic expansion. After a slowdown in the latter months of 2016, total net new job growth registered an unexpectedly strong 227,000 in January. With the current unemployment rate at 4.8%, this has provoked debates as to whether we have hit a level below which inflation and other expansion-threatening instabilities begin to appear.
From data clarity comes policy clarity. While the December jobs report shows that labor market performance remains steady, there are significant concerns that are not going to abate on their own. It was a good year for those seeking work. Employers added a net 2.2 million new jobs to their payrolls. This is slower than the 2.7 million added in 2015 and the 3 million added in 2014. It is nonetheless an encouraging performance given that the employment recovery began in earnest six years ago and has been confronting sluggish and volatile economic growth.
In a potentially brighter sign for a slow-growing, stressed U.S. manufacturing sector, the Institute for Supply Management reported that its widely followed Purchasing Managers' Index rose to a two-year high in December. This critical leading index of manufacturing growth has been strengthening consistently since September even as actual manufacturing output data remain distressingly weak, preventing the U.S. factory sector from achieving a full recovery from the Great Recession.