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.
Global Economy, Competitiveness, Government Policy, Economic Environment, Labor
While there is no debating that China must engage in acceptable trade practices, the world must recognize significant shifts in the Chinese landscape. Far from just slowing, China is seeing changes to its growth composition and to its potential growth that might turn the economic policy focus more inward, although, without a doubt, China will remain a critical player on the global economic stage. A broad understanding of such shifts in the nation is needed for an optimal answer to the “China question.”
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.