Mid-August Economic Report
- The average hourly earnings of production and nonsupervisory workers in manufacturing have risen 4.5% year-over-year, up to $23.86 in July. Yet, real average hourly earnings for production and nonsupervisory workers in manufacturing have fallen 1.0% since November, as consumer inflation has reduced the real earnings of everyday manufacturing workers.
- Similarly, producer prices for final demand goods and services have jumped a seasonally adjusted 7.7%, the biggest increase on record. At the same time, core producer prices have increased a record 6.1% since July 2020.
- Manufacturing leaders continue to cite supply chain disruptions and soaring costs as key challenges. That will put pressure on the Federal Reserve. In my view, the Federal Open Market Committee will start the process of tapering asset purchases at its next meeting in September, with the federal funds rate edging higher by mid-2022.
- Meanwhile, manufacturing job openings eased from a record 853,000 in May to 826,000 in June, remaining highly elevated and above 800,000 for the third straight month. Manufacturers continue to cite difficulties with attracting and retaining talent as one of their top concerns.
- In the larger economy, nonfarm business job openings rose to 10,073,000 in June, a new record. In June, there were 9,484,000 unemployed Americans, which translates to 0.94 unemployed workers for every one job opening in the U.S. economy. That speaks to the tightness of the labor market, with more job openings than people looking for work.
- The Small Business Optimism Index declined from 102.5 in June to 99.7 in July. The percentage of respondents suggesting they had job openings they were unable to fill edged up from 46% to 49%, a new record, and the percentage of respondents saying there were few or no qualified applicants for job openings ticked up from 56% to 57%, matching the all-time high in May.
- Manufacturing production jumped 1.4% in July, the strongest monthly gain since March. Motor vehicles and parts output soared 11.2% in July, but production in the sector remained down 3.6% since January. Excluding motor vehicles, manufacturing production increased 0.8% in July, suggesting broad-based strength beyond autos. Manufacturing capacity utilization rose from 75.5% in June to 76.6% in July, the best reading since January 2019.
- Manufacturing production has soared 7.4% over the past 12 months, with the index exceeding pre-pandemic levels of output for the first time. In fact, output in the sector was the strongest since August 2019. Moving forward, I would expect for manufacturers to be back to pre-pandemic levels in the third quarter, with production rising roughly 6% and 3% in 2021 and 2022, respectively.
- Manufacturing employment rose by 37,000 in August. Year to date, total employment in the sector has risen by a solid 190,000, with 12,421,000 manufacturing workers in August. There remained 378,000 fewer manufacturing employees relative to pre-pandemic levels.
- There was significant upward pressure on wages, with manufacturers continuing to cite difficulties in finding workers. The average hourly earnings of production and nonsupervisory workers in manufacturing rose 0.5% to $24.01 in August, with a 5.0% increase over the past year. That matches the year-over-year gain in June, which was the fastest wage growth since September 1982.
- New orders for manufactured goods rose 0.4% to a record $508.1 billion in July but slowing from the 1.5% gain in June. There were sharply reduced orders for nondefense aircraft and parts, which can be highly volatile month to month. Excluding transportation equipment, factory orders and durable goods orders were both up 0.8% in July.
- Overall, the manufacturing sector continues to expand strongly, despite lingering supply chain and pricing pressures, with new factory orders soaring 8.5% year to date. Core capital goods orders increased to $76.6 billion in July, a record high, rising 6.9% so far in 2021.
- The ISM® Manufacturing Purchasing Managers’ Index® expanded robustly once again, with the headline index edging up from 59.5 in July to 59.9 in August. Demand and output rose at very solid paces, but respondents continued to cite concerns with supply chain disruptions, rising costs and workforce shortages. Price data stabilized somewhat but remained highly elevated.
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