Economic Data and Growth

Factory orders for manufactured products declined 2.1% in July, after having risen for four consecutive months, while factory shipments increased 0.5%, according to U.S. Census Bureau data.

Orders: Durable goods orders fell 5.2% in July, mostly due to declines in orders of aircraft and aircraft parts.

• However … excluding transportation equipment, factory orders increased 0.8% in July, with durable goods up 0.5%.
• Nondurable goods orders rose 1.1% in the same period.

A spending proxy rises: New orders for core capital goods—nondefense capital goods excluding aircraft, a proxy for capital spending in the U.S. economy—inched up 0.1% in July to $73.60 billion, just shy of the record high of $73.87 billion in May.

• Year-over-year, core capital goods orders have increased 0.8%.

The long view: Orders for new manufactured goods have decreased 0.7% in the past year, with factory orders excluding transportation declining 2.5% year-over-year. 

Shipments: July marked the third consecutive month of increases for factory shipments.

• But in the past 12 months, total factory shipments have declined 0.6%, or 2.3% year-over-year excluding transportation equipment.
• Core capital goods shipments fell 0.3% in July, pulling back for the second month in a row from May’s record high of $74.05 billion.

In related news: Economic activity in the U.S. services sector continued to grow last month, with the ISM® Services PMI recording its eighth straight month of growth, the strongest pace since February, according to Markets Insider.
​​​​​​​

Consumer credit rose more than anticipated in June, according to USA Today.

What’s going on: “Overall credit increased $17.8 billion, topping economists’ average forecast for a $13 billion gain, to $4.977 trillion in June, the Fed said late Monday. May’s borrowing also was revised up by about $2 billion.”

• However … despite the June rise, “overall credit increases have moderated over the past year, showing the Fed’s aggressive interest rate hikes to squelch spending and lower inflation are working.”

“Nonrevolving” credit: Nonrevolving credit—lump sums repaid only once, such as those for school tuition and car purchases—jumped by $18.5 billion to $3.735 trillion, largely on the strength of auto sales.

Short-term debt: Short-term debt, such as credit card debt, fell in June for the first time in more than two years, to $1.262 trillion. This is likely due to the sharp increase in credit card interest rates, according to a report cited by USA Today.

The big picture: Consumer spending has stayed steady despite rising inflation owing to savings built up during the global pandemic.

Manufacturing employment declined in July, marking the third decrease of 2023, according to the Bureau of Labor Statistics.

What’s going on: Jobs in manufacturing dipped by 2,000. Year to date, the sector has added just 11,000 employees, a significant slowdown from its pace of 385,000 in 2021 and 390,000 in 2022.

• However, the number of workers in the industry in July—12,985,000—is just short of the number in February, 12,988,000. The latter was the most since November 2008.
• Overall, the economy added 187,000 jobs in July, coming in under expectations, according to Yahoo Finance.

Wages: Average hourly pay of production and nonsupervisory staff in manufacturing increased 0.3% in July to $26.46, with 5.3% growth in the past year. 

Where employment is up: In July, manufacturing’s largest employment gains were in transportation equipment (up 5,600), computers and electronic products (up 2,500), miscellaneous nondurable goods (up 1,800), primary metals (up 1,700), miscellaneous durable goods (up 1,300) and nonmetallic mineral products (up 1,000).

The NAM says: “Total manufacturing employment has remained relatively resilient despite a challenging economic environment in the sector, including weaker demand, production and an uncertain outlook,” said NAM Chief Economist Chad Moutray.
 

In the midst of supply chain challenges, truckers say they need more new trucks to meet the current demand for shipping, according to The Wall Street Journal (subscription).

Production delays: The production of heavy-duty trucks has slowed due to an ongoing parts shortage and a long backlog of orders.

• According to industry executives, the delays are preventing trucking companies from adding trucks and replacing old ones at a time when the demand for shipping is high.

Other challenges: The production delays have coincided with a truck driver shortage, high fuel prices and logistics problems associated with supply chain bottlenecks.

The forecast: Market researchers expect production of about 296,000 heavy-duty trucks in 2022. As recently as 2019, the industry produced 344,560 trucks.

Owing to Beijing’s “Covid Zero” policy, China’s economy may be facing slowed growth that mimics a recession, according to The Wall Street Journal (subscription).

What’s happening: “Millions of new graduates are struggling to find a job. Business confidence has fallen. Imports have plummeted, and nervous Chinese are socking away more savings.”

• Purchasing manager indices released last weekend by China’s government showed contractions in factory and service-sector activity for April, the second straight month of declines.
• Also dropping are cement production, smartphone shipments and intra-country sales of excavators.
• Youth unemployment is reported at 16%.

Beyond lockdowns: Fallout from the war in Ukraine has increased costs for Chinese businesses and led to less demand for China’s exports.

• Meanwhile, “[r]eal estate, a primary driver of the nation’s economy, went into free fall last year as developers buckled under heavy debts and home sales slumped.”

Why it matters: Long-term slowdowns in China are felt internationally.

• “China was projected to account for a quarter of global economic growth in the five years through 2026, according to data released by the International Monetary Fund last year.”

How to fix it: Loosened “Covid Zero” policies, which have hamstrung supply chains and kept consumers home, would be likely to jumpstart a partial recovery, according to the Journal.

• However, “Chinese officials are pledging to get the economy back on track, without abandoning their tough Covid-control policies. President Xi Jinping … has called for an all-out campaign to rev up growth through more infrastructure spending.”

Manufacturing job openings inched down in June, U.S. Bureau of Labor Statistics data showed, and manufacturers continued to see business challenges in July, according to the ISM® Manufacturing Purchasing Managers’ Index®.

What’s going on: Open positions in the manufacturing sector declined approximately 4.28%, to 582,000 in June from 608,000 in May. Meanwhile, economic activity in the manufacturing industry declined for the ninth month in a row in July.

• While the Manufacturing Purchasing Managers’ Index was 46.4 in July, up from 46.0 in June, any number under 50 indicates contraction.
• In employment, durable goods job openings decreased to 356,000 in June from 379,000 in May. In nondurable goods, openings fell to 226,000 from 229,000 in the same period.

The details: New orders (up to 47.3 from 45.6) and production (up to 48.3 from 46.7) declined more slowly in July, according to the ISM®.

• However, employment fell to 44.4 from 48.1, and exports declined to 46.2 from 47.3.

Hiring: Manufacturing’s net hiring—hires minus separations—in June was 6,000, the same as the pace in May.

• Job openings in the sector remained above pre-pandemic levels.

With a recession so far failing to materialize and inflation showing signs of weakening, manufacturers may begin to grow less wary about the economy. Recent data suggests that despite continuing risks, the bright spots may win the day.

Growth: GDP grew at a 2.4% annual rate in the second quarter of 2023. This number is notably higher than the 2.0% growth that analysts had expected for the quarter.

Employment: The overall employment rate sits at a very low 3.6%, defying expectations that the Fed’s inflation-reduction moves might create a surge in unemployment. Meanwhile, women in particular are enjoying an employment renaissance, including in manufacturing.

• Manufacturing had about 3,786,000 female employees in June, meaning that women made up 29.1% of the industry’s workforce, according to NAM Chief Economist Chad Moutray.
• That number is just slightly lower than the 3,788,000 found in May, which was the highest number of female workers in manufacturing since September 2009.

Wages: At the same time that overall economic strength is growing, the United States is also seeing positive signs in wage inequality, with average income for the lowest-earning 50% of Americans increasing  faster than all other population groups except for the ultra-wealthy.

Inflation: Inflation has been a significant pain point for manufacturers, but it now seems to be moderating. According to the latest Consumer Price Index data, inflation rose 3% in June from a year earlier—a big drop from the whopping 9.1% annual inflation rate in June 2022.

The last word: “Real GDP data suggests that while demand and output in the manufacturing sector remain challenged, there are other pockets of strength in the larger macroeconomy,” said Moutray.

• “The Federal Reserve is working to navigate a ‘soft landing’—something that is possible, even as recession risks continue to permeate the conversation.”

The Federal Reserve on Wednesday raised interest rates to their highest level in more than two decades, according to NBC News.

What’s going on: The central bank increased the target range for the federal funds rate by 25 basis points to 5.25% to 5.5%, the highest level since 2001.

Why it’s important: “Though consumer prices have declined for 12 straight months, in June, consumer prices increased 3% year on year. Even though that’s the lowest the annual inflation rate has been in more than two years, it’s still too high for the Fed, which is looking to wrestle increases down to about 2%.”

• “Supercore” inflation, which excludes shelter, gas and food costs, has remained at the 4% annual rate—far too high for the Fed’s liking—for more than two years.
• The bank’s aim in raising interest rates is to make borrowing and investing costlier, reducing demand for labor, goods and services in the economy.

Recession revision: “After Wednesday’s interest rate announcement, [Federal Reserve Chairman Jerome Powell] affirmed the central bank no longer expects a recession to occur as a result of the increases, adding that it could bump up the key interest rate even further.”

The challenge: U.S. workers are relying on the Fed to “balanc[e] unemployment and inflation. … The Fed believes it can slow the economy to reduce inflation without causing people to lose their jobs en masse.”

The International Monetary Fund raised its growth forecast for the international economy on Tuesday despite slowing activity in China, according to CNBC.

What’s going on: “In the latest update to its World Economic Outlook, the IMF raised its 2023 global growth prediction by 0.2 percentage points to 3%, up from 2.8% at its April assessment. The IMF kept [its] 2024 growth forecast unchanged at 3%.”

• The IMF expects inflation to improve, too, and sees core inflation “declining more slowly to 6% this year, from 6.5% last year.”
• IMF Chief Economist Pierre-Olivier Gourinchas wrote in a blog post Tuesday that “the signs of progress are undeniable.”

However … Global economic challenges remain on the horizon, the IMF cautioned, citing a less-than-robust Chinese economic recovery from the pandemic, weakness in China’s real-estate market and an expected contraction of Germany’s economy.

• In Germany, manufacturing output declined in Q1 2023.
• Across nations that use the euro, “[d]ata released Monday showed business activity shrinking at a faster pace than expected.”

Our take: “While there continue to be significant challenges in the manufacturing sector globally, it is encouraging to see signs of resilience—not just in the U.S. economy, but in other markets as well,” said NAM Chief Economist Chad Moutray.

Sales of new single-family homes dropped 2.5% in June after increasing for three consecutive months, according to U.S. Census Bureau data.

What’s going on: New construction sales fell to a seasonally adjusted 697,000 units last month from a revised May rate of 715,000 units.

• The median sales price of new homes in June was $415,400, down from $416,300 in May.
• Purchases of new homes declined in Midwest and West, but continued to grow in the Northeast and South.

Still higher than 2022: However, June’s sales rate is 23.8% above last June’s estimated rate of 563,000 units.

Supply: June also saw a new-home supply of 7.4 months, up from May’s 7.2 months.

The NAM’s take: “The housing market continued to be challenged by affordability issues and an uncertain economic outlook,” NAM Chief Economist Chad Moutray said. “Still, with inventories low, tremendous demand and need exist for more housing.”