Interest Rate Increases and MFG Purchasing Index
- In an effort to combat inflationary pressures in the economy, the Federal Open Market Committee voted to increase the federal funds rate by 50 basis points at the conclusion of its May 3–4 meeting, consistent with expectations, with the current range being 0.75–1.00%. It is widely anticipated that the Federal Reserve will hike interest rates by another 50 basis points at its upcoming June 14–15 meeting, with additional increases forthcoming at later meetings.
- In addition to increases in the federal funds rate, the FOMC also voted to start reducing the size of its balance sheet, which has ballooned to nearly $9 trillion, beginning on June 1. It will reduce its holdings of Treasury securities by up to $30 billion each month and of mortgage-backed securities by up to $17.5 billion each month. Then, after three months, it will step up those reductions to $60 billion and $35 billion each month, respectively.
- Manufacturing employment rose by 55,000 in April, the strongest monthly gain in nine months, with robust hiring despite significant ongoing challenges. Through the first four months of 2022, the sector hired 174,000 employees, building on the 365,000 workers added in calendar year 2021, the most since 1994.
- Currently, the manufacturing sector has 12,729,000 employees, with 56,000 fewer workers today relative to February 2020. Manufacturing employment is on track to return to pre-pandemic levels by the third quarter of this year.
- Average hourly earnings of production and nonsupervisory workers in manufacturing rose 0.3% to $24.78 in April, up 5.5% from one year ago and just shy of March’s 5.5% year-over-year pace, which was the fastest since August 1982.
- The ISM® Manufacturing Purchasing Managers’ Index® slowed to the lowest reading since July 2020. While continuing to expand somewhat modestly, the sector is grappling with challenges related to supply chains, workforce shortages and soaring costs and with uncertainties related to the Russian invasion of Ukraine and to shutdowns in China related to COVID-19.
- The latest factory orders data, which rose 2.2% in March to a new record, once again illustrate the resilience of the manufacturing sector. New orders for manufactured goods have soared 14.2% year-over-year.
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