Tags: weak | income | manufacturing | growth

Stalled Income Gains Can't Revive Manufacturing

Stalled Income Gains Can't Revive Manufacturing
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Wednesday, 01 May 2019 12:50 PM Current | Bio | Archive

INDICATOR: April Manufacturing Activity, Private Sector Jobs and March Construction Spending.

KEY DATA: ISM (Manufacturing): -2.5 points; Orders: -5.7 points; Employment: -5.1 points/ ADP Jobs: +275,000/ Construction: -0.9%

IN A NUTSHELL: “The slowing manufacturing sector needs to be watched carefully as income gains are not strong enough to support solid growth.”

WHAT IT MEANS: Today we get a Fed decision on rates and a press conference, while on Friday, the April jobs report will be released. So, should we be concerned with the days data dump? Yes! First, the Institute for Supply Management reported that manufacturing growth moderated in April. The overall index was the lowest in over two years and there were sharp declines in the growth of new orders and in hiring. The good number in the report was backlogs, which continued to expand. The filling of order books should mean that production would remain solid. Basically, this report says that while manufacturing continues to expand, the pace is slowing and that may a signal that so is the economy.

We normally look to the ADP estimate of job gains for some guidance on the government’s employment report. However, this month, that is not the case. The reason is that the chemist, I mean economist behind the estimate indicated there were several factors that may have led to an overstating of the gain. Being an economic data chemist myself, I get it. Sometimes, the models don’t work quite right and you either use judgment and adjust the data or go with the results. He went with the results and that is fine since he did qualify the numbers. That said, the report was huge, led by an enormous rise in construction payrolls. Leisure and hospitality also hired like crazy as did firms in the education and health and professional and business sectors. All sizes of business added workers solidly, but mid-sized firms went all out. In any event, let’s just wait and see what comes out Friday. My number is in the 165,000 range.

Construction hit a rough spot in March as activity fell. There were almost no major sectors that posted gains as private and government, residential and nonresidential spending were all off from February levels. Weather is always a wild card when it comes to construction, so again, let’s wait and see before getting too concerned. Still, this is another sector that must be watched.

MARKETS AND FED POLICY IMPLICATIONS: The Fed is likely to continue to take a “wait and see, data will drive our decisions” stance when the statement is released. Chair Powell will try to be as neutral as possible in his press conference and in reality, he has good reason to be so. The strong first quarter growth number was largely puff as the two key sectors, household and business spending, were soft. Inflation has faded and is running below target. So, there is no reason to threaten to hike rates anytime soon. At the same time, it is hard to argue that the economy needs a boost, so cutting rates makes absolutely no sense. Therefore, don’t expect the Fed to move the markets in any direction. That may not make the president happy, but it is not the job of the Fed to do the president’s bidding. As for investors, they should like what the Fed says, but they will also watch the earnings numbers carefully. It looks like profits have been good, while the economy is remains solid, so that there is no reason to think we are in for a major period of market volatility. Of course, if the trade talks with China fall apart, all bets are off. Don’t rule that out as improving Chinese economic data mean they have less reason to cave to U.S. demands.

Joel L. Naroff is the president and founder of Naroff Economic Advisors, a strategic economic consulting firm.
 

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JoelNaroff
The slowing manufacturing sector needs to be watched carefully as income gains are not strong enough to support solid growth.
weak, income, manufacturing, growth
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2019-50-01
Wednesday, 01 May 2019 12:50 PM
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