Durable Sector Leading Factory Job Growth

by: Cliff Waldman, Chief Economist 

In yet another sign that the improving global economic picture is generating some much-needed strength in U.S. manufacturing, the March U.S. Department of Labor jobs report revealed the fourth consecutive month of net new job creation in the factory sector, even as total job growth shows signs of slowing. The manufacturing employment gains since December have averaged a moderate 17,000, an impressive turn after a discouraging 2016 during which there were six months of factory sector job losses.

All of the manufacturing job growth in March came in the durables sector. Moreover, durables have provided the bulk of manufacturing job gains in three of the last four months. Chemicals, plastics, and petroleum were among the few nondurable industry sectors to create jobs during the past month. It is certainly good news for those seeking employment opportunities in U.S. manufacturing that even amidst a period of rapid process innovation greater demand still generates employment creation in most durable and certain nondurable industry sectors.

The bigger labor market picture is not as clear as it seems to be in manufacturing. With yet another fall in the unemployment rate, to the lowest level since April 2007, talk of full employment is now in full gear, most consequentially at the Federal Reserve. Fed policymakers worry about the impact of an apparently tight labor market on wages and inflation. Technically speaking, it is difficult to speak of “full employment” when there is such a low labor force participation rate and such a large pool of sidelined labor. 

Yes, we have a 4.5% unemployment rate. At the same time, the employment-to-population ratio is still well shy of recovering to its pre-recession level, a strange combination that is going to require persistent research and analysis to grasp. With the rise in the participation rate being so slow, and only scattered signs of improvement, it seems clear that job creation going forward is going to be constrained by supply side forces impinging on labor availability. Some of these forces are purely economic, and some go deeper into the social realm, as revealed in recent analyses by some notable demographers and economists. 

In all likelihood, the U.S. economy is in for slower job growth and higher interest rates. In the absence of significant fiscal policy stimulus, this means that overall economic growth will remain moderate. However, for once global improvement and manufacturing prospects could be an upside risk for the broad macroeconomic picture

JobsKristin Graybill
Signs of Spring Growth for Manufacturers

by: Cliff Waldman, Chief Economist

The March 2017 Manufacturing ISM® Report on Business® indicates another solid month for a manufacturing uptick. The ISM Purchasing Managers’ Index (PMI) came in at 57.2%, a 0.5 percentage point reduction from February 2017. The March data add to mounting evidence that U.S. manufacturing output performance is on track for moderate improvement up from the stagnant average growth rate of less than 1% that has plagued the factory sector since 2013. Comments from survey respondents are positive with talk of business conditions as “improving,” “positive,” “strong,” and “looking up.”

The new orders and production components, while falling from February’s levels, support the moderately brighter picture suggested by the positive trend of the overall index since August 2016. Slower supplier deliveries and a growing backlog of orders also provide further support for a more positive forecast and suggest that there is momentum in the manufacturing improvement story. The backlog of orders has now grown for two consecutive months after a long period of contraction, a striking and welcome turn for production.

Data on actual manufacturing output from the Federal Reserve are basically in sync with the recent ISM data as they show an acceleration of growth in U.S. manufacturing since the beginning of 2017. However, the year-over-year improvement thus far is moderate. Nonetheless, the reasonably broad-based nature of factory sector growth in both January and February suggests growth stability.

Signs of wide, yet modest, improvement in global growth are the key driver of better performance in U.S. manufacturing. Unfortunately, the problems of a high dollar, a long-term capital spending malaise, and significant policy uncertainty remain to challenge the magnitude of the U.S. manufacturing improvement, even as the world finally provides much-needed support for U.S factories.