I won’t bore readers with the reasons, but in the competition between fatigue and drive, fatigue has had the upper hand far too often during the past several weeks. I think that ship is being righted. Let’s hope so, and enough of that.
I haven’t blogged much on the economy in the past few weeks beyond GDP and the jobs report, so here’s a bit of catch-up.
In a nutshell, there’s plenty of reason to be concerned, but at least we have a freer-market administration which could head off a situation which would be far worse if we had Mrs. “How Could She Possibly Lose?” in charge.
Some of the more important items and data points follow.
Institute for Supply Management Surveys
The Manufacturing Index (bolds and paragraph breaks added by me):
Economic activity in the manufacturing sector expanded in April, and the overall economy grew for the 95th consecutive month, say the nation’s supply executives in the latest Manufacturing ISM® Report On Business®.
… The April PMI® registered 54.8 percent, a decrease of 2.4 percentage points from the March reading of 57.2 percent.
The New Orders Index registered 57.5 percent, a decrease of 7 percentage points from the March reading of 64.5 percent. The Production Index registered 58.6 percent, 1 percentage point higher than the March reading of 57.6 percent.
The Employment Index registered 52 percent, a decrease of 6.9 percentage points from the March reading of 58.9 percent. Inventories of raw materials registered 51 percent, an increase of 2 percentage points from the March reading of 49 percent.
The Prices Index registered 68.5 percent in April, a decrease of 2 percentage points from the March reading of 70.5 percent, indicating higher raw materials prices for the 14th consecutive month, but at a slower rate of increase in April compared with March.
Comments from the panel generally reflect stable to growing business conditions; with new orders, production, employment and inventories of raw materials all growing in April over March.
Of the 18 manufacturing industries, 16 reported growth in April …
The three key drivers were all solidly positive: Orders (which dropped from an unsustainably very high level), Production (which increased slightly), and Backlog of Orders (at 57.0 percent, down very slightly from March). I continue to harp on the Backlog figure, because it was very low and often in contraction, i.e., below 50 percent, during the Obama era.
Manufacturers with strong order backlogs can better plan their production and keep costs down. Weak backlogs, even if orders are coming in, make planning much more difficult and production more inefficient. If the Backlog figure continues to stay high, we should eventually see the return of productivity improvements which virtually vanished during the final three years of the Obama administration.
Economic activity in the non-manufacturing sector grew in April for the 88th consecutive month, say the nation’s purchasing and supply executives in the latest Non-Manufacturing ISM® Report On Business®.
… The NMI® registered 57.5 percent, which is 2.3 percentage points higher than the March reading of 55.2 percent. This represents continued growth in the non-manufacturing sector at a faster rate.
The Non-Manufacturing Business Activity Index increased to 62.4 percent, 3.5 percentage points higher than the March reading of 58.9 percent, reflecting growth for the 93rd consecutive month, at a faster rate in April. The New Orders Index registered 63.2 percent, 4.3 percentage points higher than the reading of 58.9 percent in March.
The Employment Index decreased 0.2 percentage point in April to 51.4 percent from the March reading of 51.6 percent. The Prices Index increased 4.1 percentage points from the March reading of 53.5 percent to 57.6 percent, indicating prices increased for the 13th consecutive month, at a faster rate in April.
According to the NMI®, 16 non-manufacturing industries reported growth. In April the non-manufacturing sector reflected strong growth after a slowing in the rate from the previous month.
Respondents’ comments are mostly positive about business conditions and the overall economy.
You could make an argument, even after considering positive selection bias, that things may be getting overheated in Non-Manfacturing, whose sectors make up something like 85 percent of GDP. It’s nice that New Orders and Business Activity shot up into the 60s, but I wouldn’t want to see them stay there for long, because we’d probably start seeing bottlenecks and a rebirth of inflation. Though the third key GDP driver, which is Backlog of Orders, at 53 percent, is also positive, it would be helpful to see it move up a few more points, for the same reasons as described in the Manufacturing Index.
Federal Reserve Industrial Production
The news here has been good, and long overdue. Increases during the past three months have been a combined 1.6 percent, with April’s +1.0 percent especially stellar. The overall index of 105.1 is the highest figure since March 2015. In other words, production is finally back to where it was just over two years ago.
New Vehicle Sales
They fell by 1.6 percent in April compared to April 2016, with the same number of selling days. Car sales were down by 10.6 percent, but Light Truck sales were up by 5.2 percent. That represents a 6 percent swing (-3 from cars, +3 to trucks) from the same month last year, and probably means that revenues held steady.
The big problems in the auto sector are the growing subprime and prime debt delinquencies (in the face of alltime record vehicle debt levels) and bloated inventories, particularly at General Motors. There are already serious signs of an industry slowdown leading to potential job cuts, but the industry may be headed for serious trouble if there is any kind of economic downturn — or even lackluster growth.
A decade after overbuilding and overgenerous lending (accompanied by hundreds of billions in fraud at the nation’s “government-sponsored enterprises”) brought on the housing mess, permits and starts are at perhaps 75 percent to 80 percent of where they should be in a genuinely growing housing sector (yes, after considering demographics). New single-family home sales through March are 11 percent higher than during 2016′s first quarter, but more acceleration is needed if we’re ever going to return to a genuinely prosperous level of about 750,000 annual sales.
A lot was made of April’s supposedly disappointing results, as retail sales increased by only 0.4 percent vs. expectations of +0.7 percent. Less was made of the fact that March was revised up from -0.1 percent to +0.3 percent (which, by the way, should bode well for the first revision to first-quarter gross domestic product later this month). Last year, the sum of all four monthly sales changes was +0.5 percent, which is pathetic. This year, it’s +0.8 percent, which is still far short of acceptable. If consumers are going to do their part to drive stronger growth (to be clear, it’s not as important long-term as the increases in business investment, but it needs to be there), they need to show up during the next few months.