Global Economy, Competitiveness, Economic Environment
At a time where there is too often a commonly held belief that U.S. manufacturing is in decline and is a poor career choice, the Daniel Meckstroth Award for Excellence in Manufacturing Research aims to showcase the value and improve the competitiveness of American manufacturing through original economic research. MAPI is proud to co-present the winners, Kevin L. Kliesen and John A. Tatom, with the inaugural award for their original research titled,"Is American Manufacturing in Decline?”.
In spite of the tumult of a reawakening global economy whose U.S. benefits were constrained by escalating political uncertainty, two destructive hurricanes, and an alarming confrontation with North Korea, U.S. manufacturing managed a rather bland but steady growth performance during 2017. The Federal Reserve reported that after two difficult years of essentially zero output gains, growth in the factory sector logged 1.3% during 2017.
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.
May saw the first increase in the Purchasing Managers’ Index (PMI) since February. Even accounting for the modest PMI dip in March and April, the progression of the index, since the recent low of August 2016, has been impressive. It suggests sustainability of moderate improvement in factory sector growth.
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.
There is good news for manufacturers from the Purchasing Managers’ Index. It rose by 1.5 points in the last month to 56%, continuing its five-month upward trend and indicating a likelihood of U.S. manufacturing growth. However, we should be cautious in the interpretation of this indicator because as history has shown, in uncertain times, we need a fuller set of indicators to forecast growth.