Monday Economic Report from NAM – July 24, 2017

Photo courtesy of NAM

Source: National Association of Manufacturers (NAM)

In March, the Manufacturers’ Outlook Survey from the NAM rose to an all-time high in the survey’s 20-year history, with 93.3 percent of respondents positive about their own company outlook. Three months later, manufacturers remain very upbeat. In the latest report, 89.5 percent were either somewhat or very positive about their own company outlook. This pullback in confidence mirrors easing in other sentiment surveys, even as they continue to present an encouraging assessment of overall conditions. In this case, the percentage of manufacturers, positive in their outlook, has averaged 91.4 percent over the first and second quarters of 2017, the highest consecutive two-quarter average in the survey’s history.

Recent improvements in sentiment have corresponded with stronger manufacturing activity—another sign that the sector is trending in the right direction. This is especially the case with hiring and capital spending plans, both of which are a good proxy of a firm’s willingness to invest for the future. For instance, respondents predict that full-time employment will grow an average of 2.7 percent over the next 12 months, the fastest pace in the survey’s history, up from 2.3 percent in the prior survey. Similarly, firms forecast 3.2 percent growth in capital spending over the next 12 months, a six-year high and up from 2.1 percent in March. Much of this optimism stems from strong sales growth, which changed little in this survey. Respondents predict sales growth of 4.8 percent (on average) over the next 12 months, off slightly from the 4.9 percent expected growth in the prior release, which was the fastest pace in six years.

Turning to regional analysis for the sector, manufacturing activity continued to expand in both the New York and Philadelphia Federal Reserve Bank districts, even as both surveys slowed somewhat in July. Each report found modest growth in new orders, shipments and employment for the month, and encouragingly, manufacturers remain upbeat about the next six months. Nearly 47 percent and 53.2 percent of respondents predicted higher sales moving forward in the New York and Philly Fed releases, respectively, with the latter survey expecting a sharp increase in capital spending over the coming months. Beyond those measures, business leaders also anticipate decelerating—but still elevated—pricing pressures for raw materials in the second half of this year.

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