Worries about a global economic slowdown-which has been exacerbated by renewed trade uncertainties-has caused financial markets to fall dramatically. On a more encouraging front, job openings in the manufacturing sector were unchanged at 503,000 in June, continuing to be an all-time high. Over the past 12 months, job openings have averaged nearly 483,000 per month—a highly elevated pace. With that said, the pace of hiring and separations slowed in June, mirroring other economic activity and employment data.
“Manufacturing output, the biggest component of industrial production, fell 0.4% in July from a month earlier. That helped tug down broader output across factories, mines and utilities last month.”
“The manufacturing industry’s output accounts for about 75% of the nation’s total industrial output. The Fed said manufacturing output has fallen more than 1.5% since December 2018.”
“Capacity utilization, which reflects how much industries are producing compared with what they could potentially produce, dropped by 0.3 percentage point to 77.5% in July. Economists had expected 77.8%.”
NAM Chief Economist Chad Moutray took a closer look at the manufacturing industry by sector:
“In July, durable and nondurable goods production decreased 0.2 percent and 0.5 percent, respectively, for the month. Twelve of the 19 major sectors had lower output in July, with two others unchanged.”
“The reductions in manufacturing output were led by weaknesses in the machinery, nonmetallic mineral products, plastics and rubber products, printing ”
Last week, the spread between 10-year and 2-year Treasury bond yields inverted briefly for the first time since June 2007. This spread is an important barometer, as it has historically signaled that a recession could begin in 12 to 18 months. Other yield curves around the world have also inverted, and this development created turmoil midweek in financial markets.
“It is important to recognize, however, that the inversion of the yield curve does not necessarily mean that a recession is imminent. The U.S. economy continues to show strength, particularly for consumer spending and in labor markets, and it should grow 2.3 percent in 2019, with 1.8 percent growth forecasted for 2020. Still, the risks of a recession have picked up, rising to around 50 percent over the next 24 months.”
“There are warning signs out there. For instance, manufacturing production declined 0.4 percent in July, the fifth decrease in output in the sector year to date, and over the past 12 months, manufacturing production has fallen 0.5 percent. In addition, capacity utilization in the sector has dropped from 77.3 percent in December, the best since March 2008, to 75.4 percent in July.”
“Manufacturing labor productivity fell 1.6 percent at the annual rate in the second quarter, the first decline since the first quarter of 2018. It was pulled lower by reduced output for the second straight quarter, down 2.1 percent in the second quarter. In contrast, nonfarm business labor productivity rose 2.3 percent at the annual rate in the second quarter.and support, textile and product mills and wood products sectors, among others.”