Economic Data and Growth

The yearly rate of inflation slowed in May to less than half of what it was at its peak last year, but it’s still far higher than the Federal Reserve’s goal, according to The Wall Street Journal (subscription).

What’s going on: Consumer prices increased 4% in May from a year earlier, marking the 11th straight month of slowdowns.

• On a monthly basis, consumer prices rose 0.1% in May, following a 0.4% increase in April.
• Core consumer prices—which exclude food and energy and are considered a better predictor of future inflation—rose 5.3% year-over-year in May, owing partly to increasing rent costs.

The good: “The U.S. economy has maintained momentum this year, staving off predictions of recession. The job market remains robust, and consumers have boosted their spending, though one measure shows economic output is falling. A possible credit crunch following the March collapse of a few regional banks could crimp the economy.”

The not so good: “While inflation has cooled significantly, higher prices for many goods and services are weighing on household spending decisions.”
 
What’s coming: The Fed meets today and tomorrow to determine its next steps for interest rates, which it has raised aggressively in the past year—though it probably will not raise them again this week, according to NAM Chief Economist Chad Moutray.

• The Fed “is likely to make no changes to the federal funds rate this week, but with inflation remaining more stubborn than preferred, it could hike short-term rates by 25 basis points at either or both of its July 25–26 and Sept. 19–20 meetings before hitting the pause button on rate changes,” he said.

New orders for manufactured products rose for the second month in a row in April, according to the U.S. Census Bureau.

What’s going on: New orders inched up 0.4% in April, following a 0.6% gain in March.

• Durable goods orders increased 1.1%, owing mostly to a rise in defense aircraft and parts orders, which can be volatile from month to month.
• Excluding transportation equipment, factory orders dipped 0.2% in April, the third straight month of declines.

The big picture: Overall, orders for new manufactured goods have declined 2.6% since peaking a year ago.

• With factory orders (excluding transportation) down 4.3% over the past 10 months, manufacturing activity has contracted notably since last summer.

The good news: New orders for core capital goods (nondefense capital goods excluding aircraft) rose 1.3% in April after two straight months of declines.

• Core capital goods orders are considered a proxy for capital spending in the U.S. economy. These totaled $73.982 billion in April, just under the record $73.985 billion in December and signifying 2.5% year-over-year growth.

Factory shipments: Factory shipments decreased 0.4% in April, the third straight month of declines.

• Overall, total factory shipments have declined 2.9%—or 4.2% excluding transportation equipment—since peaking a year ago.
• However, core capital goods shipments rose 0.5% in April to $73.848 billion, just slightly under January’s record of $73.850 billion. Core capital goods shipments have risen 4.1% year-over-year.

Manufacturing shed 2,000 jobs in May, the second month of declines for the industry in the past quarter, according to the Bureau of Labor Statistics.

What’s going on: Manufacturing has added just 10,000 workers year to date, a significant slowdown from the 385,000 and 390,000 employees in 2021 and 2022, respectively.

• However … there were 12,984,000 manufacturing employees in May, just shy of the 12,988,000 in February, the highest number in more than 14 years.

Earnings are up: Average hourly wages of production and nonsupervisory employees in the sector increased 0.6%, from $26.03 in April to $26.19 in May.

• Manufacturing wages saw 4.9% growth in the past 12 months, which is an increase from the 4.7% year-over-year growth in April.

The bigger picture: Overall, U.S. employers added 339,000 new workers in May, an increase from April’s 294,000.

• While the U.S. economy has added 1,570,000 workers through the first five months of 2023—a strong pace—the U.S. unemployment rate increased to 3.7% in May from 3.4% in April.

​​​​​​​​​What’s up: The largest employment gains in manufacturing in May occurred in transportation equipment (up 10,500, including 6,800 for motor vehicles and related parts), electrical equipment, appliances and components (up 2,100), primary metals (up 2,000), chemicals (up 1,700), wood products (up 800) and miscellaneous nondurable goods (up 300).

What’s down: The biggest employment declines in the sector in May occurred in furniture and related products (down 4,000), machinery (down 2,400), fabricated metal products (down 2,300), printing and related support activities (down 2,000) and textile mills (down 2,000), among others.

The NAM says: In May “the labor market remained solid, with wages continuing to increase at healthy paces despite some deceleration from the 40-year highs seen last spring,” said NAM Chief Economist Chad Moutray.

As banks tighten their lending standards in response to turmoil in the industry, it’s small businesses that are suffering, according to The Wall Street Journal (subscription).

What’s going on: “Some entrepreneurs are finding it more difficult to get a new loan or have had existing credit lines cut. Others report stricter terms, higher borrowing costs, longer waits and tougher questions from their bankers.”

Not your imagination: Close to half of all banks reported having tightened their lending standards in the past three months, according to a Federal Reserve Board survey cited by the Journal.

• “The median interest rate for a variable-rate, small-business term loan was 7.44% in the fourth quarter, the last period for which data is available, up 3.42 percentage points from a year earlier, according to the Federal Reserve Bank of Kansas City. Banks have continued to raise rates this year in response to Federal Reserve rate increases,” one source told the newspaper.

​​​​​​​Why it’s important: More stringent loan rules are forcing smaller companies—which tend to borrow from small banks—to put off or cancel expansions and consider bringing in equity investors.

• “‘The alternative to borrowing from your local small bank is another form of financing that is going to be notably more expensive,’ said Goldman Sachs chief U.S. economist David Mericle.”
• Some banks are telling small businesses to seek Small Business Administration loans, which “carry a government guarantee” but tend to have higher interest rates than their conventional counterparts.

The last word: “Manufacturers—particularly small and medium-sized firms—are closely following developments related to access to credit, with an eye on the tightening of lending standards that were occurring even before the recent banking crisis,” said NAM Chief Economist Chad Moutray.

• “Businesses need credit to be able to expand their operations, and any pullback in that access could have consequences.” ​​​​​​​

Sales of previously owned homes declined in April to the lowest pace since the pandemic began, CNBC reports.

What’s happening: “Existing home sales declined 2.4% compared with March to a seasonally adjusted annualized rate of 5.61 million units, the [National Association of Realtors] said. Sales were 5.9% lower than in April 2021. That is the slowest rate since June 2020, which was artificially slow since the economy was struggling with sweeping shutdowns due to the coronavirus.”

• “This count represents closings during the month, so it reflects contracts likely signed in February and March, when mortgage rates were rising.”
• The average 30-year fixed mortgage rate is now around 5.45%.

Shortage continues: Existing home inventory at the end of April was at 1.03 million homes for sale, down 10.4% from two years ago.

• Limited supply kept prices higher. The median price of an existing home sold in April was $391,200, the highest on record.

What’s ahead: The National Association of Realtors said it expects “further declines” in existing home sales.

U.S. natural gas production is likely to keep growing through 2050, while LNG exports will take off, according to new forecasts from the Energy Information Association.

The gist: Natural gas production is predicted to increase 15%, while LNG exports will skyrocket 152% between last year and 2050, according to the EIA’s “Annual Energy Outlook 2023.”

• “Production growth is largely driven by U.S. LNG exports, which we expect to rise to 10 [trillion cubic feet] by 2050,” an EIA blog post explains.

Where it’s happening: “Natural gas production growth on the Gulf Coast and in the Southwest reflects increased activity in the Haynesville Formation and Permian Basin, which are close to infrastructure connecting natural gas supply to growing LNG export facilities.”

• “New liquefaction facilities in Louisiana became fully operational in 2022, ahead of schedule. In addition, new LNG trains in Texas are scheduled to be online by 2025.”

How they figured it out: This projection comes from the “reference case” in the outlook report for 2023.

• “We use different scenarios, called cases, to understand how varying assumptions affect energy trends. The AEO2023 Reference case, which serves as a baseline, or benchmark, reflects laws and regulations adopted through mid-November 2022, including the Inflation Reduction Act,” according to the EIA blog.

Washington, D.C. – Following the Securities and Exchange Commission’s decision to finalize its costly and unnecessary stock buybacks rule, National Association of Manufacturers Managing Vice President of Tax and Domestic Economic Policy Chris Netram released the following statement:

“The NAM is disappointed that the SEC has chosen to unjustifiably punish manufacturers for returning capital to their shareholders. Manufacturers, investors, retirement plans and the entire economy benefit when companies can efficiently allocate capital via share repurchases. The NAM was successful in convincing the SEC to abandon the most damaging aspect of its initial proposal, but the commission’s attempt to discourage these commonplace, commonsense transactions via an overly complicated, expensive and unworkable disclosure mandate is nevertheless a departure from its mission to enhance capital formation and protect investors.”

-NAM-

The National Association of Manufacturers is the largest manufacturing association in the United States, representing small and large manufacturers in every industrial sector and in all 50 states. Manufacturing employs nearly 13 million men and women, contributes $2.81 trillion to the U.S. economy annually and accounts for 55% of private-sector research and development. The NAM is the powerful voice of the manufacturing community and the leading advocate for a policy agenda that helps manufacturers compete in the global economy and create jobs across the United States. For more information about the NAM or to follow us on Twitter and Facebook, please visit www.nam.org.

Manufacturing saw robust growth in the fourth quarter of 2022, according to newly revised real GDP estimates from the Commerce Department.

What’s going on: While the overall U.S. economy grew 2.6% at the annual rate in Q4 of last year, real GDP in the manufacturing industry rose by an annualized 5.5%. That’s a sizable increase from the 0.5% seen in the third quarter.

Q4 details: Value-added output in manufacturing increased to $2.895 trillion at the annual rate—an all-time high—from $2.809 trillion in Q3.

• Value-added output hit record levels for both durable goods (up to $1.595 trillion from $1.544 trillion) and nondurable goods (up to $1.299 trillion from $1.265 trillion).
• Manufacturing made up 11.1% of value-added output in the U.S. economy, an increase from Q3’s 10.9% and the most since 2019.
• Manufacturing gross output also rose to a record number, $7.359 trillion from $7.339 trillion at the annual rate.

However … Real value-added output in manufacturing remained lower than the record high in 2021.

• Real value-added output rose to $2.283 trillion from $2.259 trillion at the annual rate, as expressed in 2012 dollars.
• The record high, in 2021, was $2.325 trillion.

The NAM’s take: “Despite numerous challenges, manufacturing continues to prove its resilience, hitting new records for the sector’s contributions to the U.S. economy,” said NAM Chief Economist Chad Moutray. “These data also suggest that in real terms, manufacturing output has pulled back recently, which points to inflation having buoyed these numbers.”

What does it take to be a digital transformation champion? Anheuser-Busch InBev can tell you.

The world’s largest brewer won four Manufacturing Leadership Awards in 2022, including the highly coveted Manufacturer of the Year. (The honors are given annually by the Manufacturing Leadership Council, the NAM’s digital transformation arm.) The MLC chatted with AB InBev Global Vice President Marcelo Ribeiro recently to get his insights on the processes, technologies and strategies driving the company’s success.

Business transformation drivers: “We have a dream at ABI, which is ‘to create a future with more cheers,’” said Ribeiro. “[That means] a clear strategy to lead and grow, to digitize and monetize our ecosystem and to optimize our business.” Here are a few ways AB InBev is pursuing that dream:

• Developing and delivering products that give consumers what they want, when they want it
• Making sure the supply chain can adapt quickly to consumer needs
• Increasing capacity without compromising safety, quality or sustainability

Rising to challenges: “The future is becoming less predictable,” Ribeiro said. “We need to prepare for that, so we have to build a more resilient, flexible supply chain.” Additional opportunities include:

• Moving from transactional relationships with vendors and suppliers to partnerships
• Looking beyond operations and across the entire supply chain to meet sustainability goals
• Creating a collaborative manufacturing ecosystem that fosters the sharing of ideas

Meeting the digital future: Ribeiro says that ABI’s digital strategy has three key aspects:

• Making data more accessible and available to frontline workers
• Creating a template for digital technology that can be easily tailored to the unique needs of each business
• Using advanced analytics to contextualize data and discover where it can best be applied to aid decision making

Leaders required: Ribeiro noted that leadership is essential for making this vision a reality.

• “It is critical to empower the front line,” he said. “Leaders should be focused on providing the resources to allow people to do the work and achieve excellence themselves. In the end, people are key for any business transformation.”

Find additional insights into AB InBev’s digital transformation in DIALOGUE: AB InBev’s Award-Winning Dream, or make plans to attend Rethink, where Ribeiro will present a keynote address on “Building Your Enterprise into a Digital Transformation Champion.”

The NAM recently released its Top 8 Manufacturing Trends for 2023—a guide to the opportunities ahead and the resources that the NAM can offer. Here is what to look out for this year and beyond.  

Advanced and emerging technology: Manufacturers are investing in a multitude of new technologies, including artificial intelligence, virtual reality, machine learning and more. Automation and robotics are enhancing workers’ abilities but will also require many more high-skilled employees. Though the workforce shortage is a challenge, digital technologies will help manufacturers become more resilient, efficient and profitable.

• NAM resources: How do you maximize these opportunities? The NAM has resources for you, including the Manufacturing Leadership Council (the NAM’s digital transformation arm), the Innovation Research Interchange (the NAM’s innovation division) and the MLC’s Manufacturing in 2030 Project.

Supply chain resilience: As manufacturers face long lead times, increased costs and a scarcity of raw materials, they are taking steps to boost supply chain resilience through reshoring, cybersecurity, increased supplier pools and more.

• NAM resources: Manufacturers can benefit from resources like CONNEX Marketplace, which helps connect nearby manufacturers and suppliers; the NAM’s Supply Chain Hub—a continually updated collection of webinars and policy documents focusing on supply chain issues; and useful case studies highlighting best practices.

Talent disruptions and opportunities: Manufacturers are confronting a range of challenges around the workforce, including labor shortages and skills gaps, while also figuring out how to take advantage of previously untapped talent pools. 

• NAM resources: If you are searching for ways to enhance your employee benefits, The NAM Manufacturers Retirement 401(k) and Savings Plan offers manufacturing employees secure benefits for the future, while Innovation Management Workshops give manufacturing leaders the skills to build innovative and creative teams. Meanwhile, the Manufacturing Institute—the 501(c)3 nonprofit workforce development and education partner of the NAM—promotes a range of events and initiatives designed to expand and diversify the manufacturing workforce as a whole. 

Cybersecurity: The threat from bad actors is real, and strong cybersecurity has become critical to manufacturing operations up and down the supply chain. At the same time, manufacturers will have to be on the lookout for new cybersecurity reporting requirements.

• NAM resources: The NAM can help, with support like the NAM’s complimentary Cyber Risk Assessment. NAM Cyber Cover offers cyber insurance and risk mitigation, and you can check out these videos from manufacturing executives laying out best practices for cybersecurity defenses. 

Post-pandemic growth and expansion: Long-term goals shouldn’t be downgraded, despite an uncertain economy. Manufacturers should keep pursuing technological advances, navigate government incentives and stay open to mergers, acquisitions and other investments.

• NAM resources: The NAM Incentives Locator helps manufacturers find funds and tax credits to help their business, while the MLC offers networking opportunities for manufacturing leaders.

Tough economic outlook: There’s no doubt that manufacturers face economic headwinds. That means manufacturers need to look for ways to be nimble and responsive to changing realities and able to work more efficiently than ever. 

• NAM resources: Tools like NAM Shipping & Logistics give manufacturers discounts on shipping and freight, while NAM Energy offers conversations with energy advisers who can help adjust energy use strategies. IRI Coffee Houses promote virtual conversations with innovation leaders to discuss new developments and opportunities.

Sustainability: Manufacturers are committed to strengthening operations and maintaining a healthy planet at the same time. More than ever, manufacturing companies are looking for ways to reduce carbon emissions.

• NAM resources: The NAM provides resources that can help manufacturers with innovating for sustainability, as well as rethinking end-of-life technology value. Manufacturers can also learn about how digital solutions drive sustainability in manufacturing. 

Looking ahead to 2030: Changes in the manufacturing industry and in the world around us—from population growth to the rise of a new middle class to increased interconnectivity—have manufacturers planning for big changes in the next decade. 

• NAM resources: The IRI offers a forum for manufacturers to connect with R&D leaders, while the MLC’s Next Phase of Digital Evolution report shows how manufacturing leaders can plan their long-term futures.

 Learn more: Take a look at the full guide for more details and to find out more about the NAM resources that will help manufacturers deal with these key trends.