Indicators Remain Positive for U.S. Manufacturing

New Orders for Durable Goods

The U.S. Census Bureau announced on Thursday that new orders for manufactured durable goods in May increased by 0.4 percent on a 3MMA basis month over month and were up by 8.2 percent year over year. Figure 2 shows the 3MMA of monthly orders for durable goods since January 2010 and that the percent change year over year was the highest since September 2014.

The Durable Goods Portion of GDP

The third estimate of Q1 2018 GDP came in at 2.0 percent annualized growth, which was down from 2.86 percent in Q4 2017. A subcomponent of the quarterly data is durable goods, which is part of the personal consumption calculation. It therefore contains no military hardware or civil aircraft data. This is shown in Figure 3 and, presumably because of the exclusions just mentioned, looks nothing like Figure 2. The durable goods portion of GDP declined in Q1 2018, but the long-term trend is still very positive. 

Light Vehicle Production in NAFTA

Our past reports have included auto assembly data for the U.S., Canada and Mexico, but that source has dried up, so until we find a replacement we are reporting on U.S. auto sales. Another complication is that effective April 2018, GM no longer reported their sales results. Automobile sales have trended down slightly in the last 2 ½ years, but in May were up by 0.6 percent year over year. Sales are still strong on a historical basis (Figure 4). Consumer preference for light trucks, which includes SUVs and crossovers is still increasing.  

Manufacturing Employment

Manufacturing employment plummeted during the recession and gradually improved from the spring of 2010 through 2014. Growth was flat in 2015 and declined slightly in 2016 when 23,000 jobs were lost during the year as a whole. There was a turnaround in 2017 and in the 10 months August 2017 through May 2018, 249,000 jobs were created in manufacturing (Figure 5). The motor vehicles and parts subcomponent of manufacturing employment had a net gain of only 25,000 in the same timeframe. 

Manufacturing Productivity

The Bureau of Labor Statistics reported that in Q1 2018, manufacturing productivity improved by 0.8 percent year over year (Figure 6). Productivity growth was erratic in 2017, but there has been a gradual improvement for three years.

The ISM Manufacturing Index

The Institute for Supply Management’s Manufacturing Index is a diffusion index. ISM states: “Diffusion indexes have the properties of leading indicators and are convenient summary measures showing the prevailing direction of change and the scope of change. An index value above 50 percent indicates that the manufacturing economy is generally expanding; below 50 percent indicates the opposite.” Figure 7 shows the 3MMA of the ISM index from January 1997 through May 2018 with an improving trend since January 2016. In May, the 3MMA of the index at 58.43 was down by 1.3 from March, but still historically high.

SMU Comment: Last month, we introduced an indicator map for manufacturing that is shown as Figure 8. There are no clouds on the horizon. The weakest indicator of the seven is the increase in labor productivity, which we find surprising considering all we read about AI and automation.