Thursday, 15 of November of 2018

Economics. Explained.  

GDP, Inflation, and Interest Rate Forecasts

November 2, 2018

The first look at GDP growth in the third quarter came in at 3.5% which compares to second quarter GDP growth of 4.2%.  We expect GDP to rise 3.0% this year and 2.9% in 2019.

Consumer spending rose 4.0% in the third quarter after having risen 3.8% in the second quarter.  We expect it to rise 2.6% in 2019.  The consumer and corporate tax cuts should lift the stock market to yet another record high level by yearend.  Stock prices should rebound which will boost household wealth.  The gains in employment are generating income which gives consumers the ability to spend.  Consumer debt is very low in relation to income.  Consumer confidence is at an 18-year high.  Interest rates  are rising very slowly but remain low.

Investment spending took a breather and slowed to 0.8% in the third quarter after having climbed 8.7% in the second quarter.  Investment spending was essentially unchanged for 2014-2016.  It appears that the corporate tax cuts, repatriation of earnings at a favorable tax rate, and a reduction in the regulatory burden are giving business leaders confidence to open their wallets and spend on new equipment and technology.  Not only will this boost GDP growth in the short term, if investment continues to climb it will boost productivity growth which will, in turn, raise the economic speed limit from about 1.8% today to 2.8% or so by the end of this decade.

The trade gap widened by $98 billion in the third quarter to -$939.0 billion after having narrowed by $61.4 billion in the second quarter.  This means that the trade component subtracted 1.7% from GDP growth in the third quarter after having added 1.4% to GDP growth in the second quarter.  We expect the trade component to have no impact on GDP growth in 2018 and subtract 0.1% from GDP growth in 2019.

Nonfarm inventories surged by $76.3 billion in the third quarter after having declined $36.8 billion in the second quarter. Going forward we expect inventories to climb by about $42 billion per quarter.

Expect GDP growth of 3.0% in 2018 and 2.9% in 2019 after having registered growth of 2.5% in 2017.

The inflation rate is gradually beginning to climb.  The economy is at full employment which finally appears to be boosting wages.  Both manufacturing and non-manufacturing firms are paying high prices for their raw materials so commodity prices are on the rise.  There is a shortage of available homes and apartments in the housing sector which is raising rents.  Thus inflation does, in fact, seem headed higher as the year progresses.   However, the pickup in inflation will be limited as internet price shopping will keep goods prices falling in 2018.  As a result we expect the core CPI to climb from  1.8% last year to 2.2% in 2018 and 2.4% in 2019.

Slightly faster inflation will push long-term interest rates higher with the 10-year hitting 3.3% by the end of 2018 and 4.1% in 2019.  Mortgage rates should climb to 4.9% by the end of this year and 5.7% by the end of 2019.

With GDP likely to expand in 2018 at a rate slightly faster than its current potential and inflation expected to rise slightly above its target, the Fed will feel compelled to continue on a path towards gradually higher interest rates.  It needs to do so to get itself into position to lower rates when the time comes, but it appears to have the luxury of taking its time.  We expect one more rate hike in 2018 which would put the funds rate at 2.2% by the end of the year.  It should rise further to the 3.2% mark by the end of 2019.  The Fed will also continue to run off some of its security holdings throughout 2018 and 2019.

Stephen Slifer

NumberNomics

Charleston, SC

 


Private Employment

November 2, 2018

Private sector employment for October surged by 246 thousand after having climbed by 121 thousand in September.   The October increase was somewhat larger than anticipated which counters the smaller-than-normal increase in September.   In our opinion, the outlook for employment has not changed much in the wake of this report.  The Bureau of Labor Statistics indicated that Hurricane Michael that made landfall in the Florida Panhandle on October 10 had no discernible effect on either the employment or unemployment estimates for October.

A better reading of what is truly going on is represented by the  3-month moving average of private employment which is now 211 thousand.  That compares to an average increase of 180 thousand in 2017.  Thus, employment continues to chug along.  The labor force is growing by about 180 thousand per month.  For employment gains to be consistently larger than the increase in the labor force implies some people not previously in the labor force are choosing to return (like discouraged workers).

Amongst the various employment categories construction employment rose 30 thousand in October after expanding by 20 thousand in September.    The trend increase in construction employment appears to be about 30 thousand per month.  But what seems to be important is that the monthly gains in this category seem to be gradually getting larger.

Manufacturing employment jumped 32 thousand in October after having risen 18 thousand in September.    Factory employment is now rising by about 25 thousand per month and, like construction employment, the monthly increases seem to be gradually getting larger.  Employers seem to be finding additional workers.

Mining rose 5 thousand in both September and October.  After a long period of steady declines mining employment is now rising about 5 thousand per month as rising oil prices are boosting hiring in that  sector.

Elsewhere, health care and social assistance climbed by 47 thousand.  Professional and business services increased 35 thousand in October.  Transportation and warehousing climbed by 25 thousand.  Employment in leisure and hospitality establishments jumped 42 thousand in October.  Retail jobs rose 2 thousand.

In any given month employers can boost output by either additional hiring or by lengthening the number of  hours that their employees work.  The nonfarm workweek rose 0.1 hour to 34.5 hours in October after a similar-sized decline in September  That is  about as long as it gets.  The  elevated level of the workweek  implies that employers are in need of workers and will continue to hire at a meaningful pace in the months ahead.

The increases in  employment and hours worked are reflected in the aggregate hours index which rose 0.5% in October after declining 0.3% in September.  Thus, it rose 1.1% in Q3.

There is no doubt that the consumer sector of the economy is expanding at roughly a 2.5% pace.  Individual  income tax cuts should slightly boost spending in 2019.  The stock market had a tough month of October but seems to be rebounding and should reach new highs before too much longer.  Consumer confidence is holding up well and has shrugged off the October decline in the stock market.  Remember that consumer spending represents two-thirds of total GDP.

The sector of the economy that had previously been weak was the various production industries.  But that has now turned upwards.  As noted earlier, factory employment is gathering momentum.  Construction employment has been rising steadily.  And even mining has been rising somewhat after a steady series of declines associated with the drop in oil prices.

Looking ahead the prospect of both individual and corporate income cuts and the repatriation of some overseas earnings currently locked overseas should boost GDP growth from 2.5% in 2017 to 3.0% this year and 2.9% in 2019.

Stephen Slifer

NumberNomics

Charleston, SC


Payroll Employment

November 2, 2018

Payroll employment for October surged by 250 thousand after having climbed by 118 thousand in September.   The October increase was somewhat larger than anticipated which counters the smaller-than-normal increase in September.   In our opinion, the outlook for employment has not changed much in the wake of this report.  The Bureau of Labor Statistics indicated that Hurricane Michael that made landfall in the Florida Panhandle on October 10 had no discernible effect on either the employment or unemployment estimates for October.

A better reading of what is truly going on is represented by the  3-month moving average of private employment which is now 218 thousand.  That compares to an average increase of 180 thousand in 2017.  Thus, employment continues to chug along.  The labor force is growing by about 180 thousand per month.  For employment gains to be consistently larger than the increase in the labor force implies some people not previously in the labor force are choosing to return (like discouraged workers).

Amongst the various employment categories construction employment rose 30 thousand in October after expanding by 20 thousand in September.    The trend increase in construction employment appears to be about 30 thousand per month.  But what seems to be important is that the monthly gains in this category seem to be gradually getting larger.

Manufacturing employment jumped 32 thousand in October after having risen 18 thousand in September.    Factory employment is now rising by about 25 thousand per month and, like construction employment, the monthly increases seem to be gradually getting larger.  Employers seem to be finding additional workers.

Mining rose 5 thousand in both September and October.  After a long period of steady declines mining employment is now rising about 5 thousand per month as rising oil prices are boosting hiring in that  sector.

Elsewhere, health care and social assistance climbed by 47 thousand.  Professional and business services increased 35 thousand in October.  Transportation and warehousing climbed by 25 thousand.  Employment in leisure and hospitality establishments jumped 42 thousand in October.  Retail jobs rose 2 thousand.

In any given month employers can boost output by either additional hiring or by lengthening the number of  hours that their employees work.  The nonfarm workweek rose 0.1 hour to 34.5 hours in October after a similar-sized decline in September  That is  about as long as it gets.  The  elevated level of the workweek  implies that employers are in need of workers and will continue to hire at a meaningful pace in the months ahead.

The increases in  employment and hours worked are reflected in the aggregate hours index which rose 0.5% in October after declining 0.3% in September.  Thus, it rose 1.1% in Q3.

There is no doubt that the consumer sector of the economy is expanding at roughly a 2.5% pace.  Individual  income tax cuts should slightly boost spending in 2019.  The stock market had a tough month of October but seems to be rebounding and should reach new highs before too much longer.  Consumer confidence is holding up well and has shrugged off the October decline in the stock market.  Remember that consumer spending represents two-thirds of total GDP.

The sector of the economy that had previously been weak was the various production industries.  But that has now turned upwards.  As noted earlier, factory employment is gathering momentum.  Construction employment has been rising steadily.  And even mining has been rising somewhat after a steady series of declines associated with the drop in oil prices.

Looking ahead the prospect of both individual and corporate income cuts and the repatriation of some overseas earnings currently locked overseas should boost GDP growth from 2.5% in 2017 to 3.0% this year and 2.9% in 2019.

Stephen Slifer

NumberNomics

Charleston, SC


Unemployment Rate

November 2, 2018

The unemployment rate was unchanged in October at 3.7% after having declined 0.2% in September.    The October level of 3.7% is the lowest level for the unemployment rate in 48 years.  The labor force jumped 711 thousand in October.  Employment surged by 600 thousand.  As a result, the number of unemployed workers rose by  111 thousand but the unemployment rate remained steady at 3.7%.  While employment used in calculating the unemployment rate rose 600 thousand, payroll employment increased by just 250 thousand.  How can this be?  First, the two are figures are derived from separate data streams.  The payroll number is calculated from employment numbers reported by a large number of employers across all industries.  Employment for the unemployment rate calculation is derived from knocking on doors and asking people if they have a job.  It is known as the  household survey.  One conceptual difference is that the household survey includes people who are self-employed which would not be captured in the establishment survey. It could be that self-employed workers rose sharply in October.  The other reality is that there is just statistical noise between the two surveys.  The trend rate of growth is similar, but with wide variation from month to month — the household survey being the more volatile of the two.

Labor force growth in the past year was 1.4% which is slightly more than growth in the population which was 1.1%.  Thus, the labor force partition rate rose slightly during that period of time.  It is now 62.9%.  A year ago it was 62.7%.

At 3.7% the unemployment rate is far below the 4.5% level that the Fed considers to be full employment.  However,  the official rate can be misleading because it does not include “underemployed” workers which is true.  There are two types of “underemployed” workers.  First, there are people who have unsuccessfully sought employment for so long that they have given up looking for a job.  Second, are those workers  that currently have a part time position but indicate that they would like full time employment.  The total of these two types of underemployed workers are  “marginally attached” to the labor force.  The number of marginally attached workers has been falling quite steadily and is now roughly in line with where it was going into the recession.

We should probably be focusing more on the broadest measure of unemployment because it includes these underemployed individuals.  The broad fell 0.1% in October to 7.4% after having risen 0.1% in September.  At 7.4% it is lower than where it was going into the recession.  It is hard to argue that there is slack remaining in the labor market.  The broad rate of  7.4% compares to 3.7% for the official rate.

As the economy continues to expand the pace of hiring will remain steady and  both rates are going to fall.  As firms look a bit harder to find the workers they need they may have to turn to other sectors of the labor market rather than just currently unemployed workers.  They may seek younger workers, but they may have a difficult time because our youth unemployment rate is the lowest it has been in more than 48 years.

They may also look at some of their part-time workers who are reliable and have a good work ethic and offer them full-time positions.  Employers may have a bit more success here.  The number of part time workers who say they want full time employment is still slightly higher than it was going into the recession, although it is steadily declining and getting very close.

In short, both rates should continue to fall in the months ahead and are already below their full-employment threshold.  In that world labor shortages are likely to become even more evident in the months ahead.  That will put upward pressure on wage rates which should, in turn, gradually lift the inflation rate.  As a result, the Fed will continue to gradually raise the funds rate in the months ahead.

Stephen Slifer

NumberNomics

Charleston, SC


Nonfarm Workweek

November 2, 2018

In any given month employers can boost output by either additional hiring or by lengthening the number of  hours that their employees work.  Payroll employment for October rose 250 thousand after having climbed by 118 thousand in September.  The larger-then-expected increase in October counters the smaller-than-normal increase in October.  The outlook for employment has not changed much in the wake of this report.

The nonfarm workweek rose 0.1 hour in October to 34.5 hours after a similar-sized decline in September.  That is about as long as it gets.  The  elevated level of the workweek  implies that employers are in need of workers and will continue to hire at a meaningful pace in the months ahead.

The increases in  employment and hours worked are reflected in the aggregate hours index which rose 0.6% in October after a 0.3% decline in September.  For the third quarter it climbed 1.1%.

The factory workweek declined 0.1 hour in October to 40.8 hours after having been unchanged in September.  This series is also about as high as it gets and will lead to additional factory hiring in the months ahead.  With individual and corporate tax cuts taking effect this year and U.S. firms able to repatriate overseas earnings to the U.S. at a favorable tax rate, the factory sector is gathering  momentum.

Overtime hours were unchanged in October at 3.5 hours .  Like the factory workweek this series, too, is quite long.  The manufacturing sector is trying hard to find the workers it needs — hiring as best it can given the shortage of qualified workers, working existing employees longer hours, and asking people on the line to work more overtime hours.

The economy continues to expand at a respectable pace.  We currently expect GDP to quicken from a 2.5% pace in 2017 to 3.0% in 2018 and 2.9% next year given the prospect of both individual and corporate income tax cuts and repatriation of corporate earnings currently locked overseas.  The economy is currently being supported by robust growth in consumer spending and housing and now manufacturing is coming on strong.

Stephen Slifer

NumberNomics

Charleston, SC


Average Hourly Earnings

November 2, 2018

Average  hourly earnings rose 0.2% in October to $27.30 after having risen 0.3% in September.  Hourly earnings are gradually rising.  During the past year hourly earnings have risen 3.1%.  This is the fastest 12-month increase in a decade and it would be growing more quickly except for the impact from retiring baby boomers.  When you lose a number of people who have been working for 40 years who are making high wages, and replace them by younger workers who are making much less, this series will have a downward bias.  The Atlanta Fed has a series called “wage tracker” in which it tries to adjust for this bias and it believes that wages are currently rising at a 3.5% pace.  This series has been growing somewhat more quickly than the official hourly earnings data and, therefore, seems more consistent with the apparent tightness in the labor market.

In addition to their hourly wages workers can also work overtime hours.  Increases in their total income are captured by the increase in weekly earnings.  Weekly earnings rose 0.5% in October after having been unchanged in September.  Weekly wages have risen 3.4% during the course of the past year.

Wages  appear to be rising a bit more quickly and are able to support a moderate sustained 2.5% pace of consumer spending.

The potential impact on inflation from the tight labor market is best demonstrated by looking at unit labor costs which are labor costs adjusted for the changes in productivity.  In the past year these unit labor costs have risen 1.5% with a 2.8% increase in compensation partially offset by a 1.3% increase in productivity.  Keep in mind that the Fed has a 2.0% inflation target.  If labor costs adjusted for productivity — which account for about two-thirds of a firms overall costs —  are rising by just 1.5%, the tight labor market is not putting upward pressure on the inflation rate.  Much of the increase in wages is being offset by an increase in productivity.

Stephen Slifer

NumberNomics

Charleston, SC

 

 


Average Duration of Unemployment

November 2, 2018

The average duration of unemployment declined 1.5 weeks in October to 22.5 weeks after having risen 1.4 weeks in September.  This series bounces around from month to month.  The June level of 21.2 was the shortest average length of time workers remain unemployed since March 2009.

While the unemployment rate has fallen by 6.3% since reaching a peak of 10.0% in October 2009, the average duration of unemployment has declined far more slowly.  It is clear that  few of the new hires have been from the ranks of the long-term unemployed.  There is a mismatch between the skills that employers need, and the skill set that these long-term unemployed workers seem to have.  Employers in today’s world demand their new hires to be tech savvy, and these long-term unemployed workers tend not to have that ability.

The Bureau of Labor Statistics indicates that 1.37 million workers have been jobless for 27 weeks or longer, and that represents 22.5% of all unemployed workers.

The average duration of unemployment should continue to decline slowly in the months ahead as the labor market gets progressively tighter.  Firms will have to look just a bit harder to find the workers that they need, and that includes looking at long term unemployed workers and perhaps offering them some sort of training program to improve their skills.

Stephen Slifer

NumberNomics

Charleston, SC


Trade Deficit

November 2, 2018

The trade deficit for September widened by$0.8 billion to $54.0 billion after having widened by $3.3 billion in August.     Exports rose 1.5% in September.  Imports also rose by 1.5%.  The dramatic narrowing of the trade gap in the second quarter added 1.4% to U.S. GDP growth and lifted GDP growth in that quarter to the 4.2% mark.  In the third quarter the trade deficit widened sharply and subtracted 1.7% from U.S. GDP growth in that quarter and reduce GDP growth to 3.5%.

We attribute these rather volatile swings to the imposition of tariffs.  Exports surged 9.3% in the second quarter but declined 3.5% in Q3.   Imports did the opposite.  They declined 0.6% in the second quarter but surged 9.1% in the third quarter.  These quarterly swings and the corresponding impact on GDP are dramatic, but the impact on GDP growth for the year as a whole will be negligible.  To be specific we expect trade to have little impact on GDP growth in either this year or 2019.  Furthermore, the imposition of tariffs has not dampened foreigners willingness to invest in the U.S.  With tax cuts and deregulation boosting the pace of GDP growth in the U.S. and lifting the U.S. stock market, foreign investors find the U.S. an attractive place to invest  Capital inflows should continue apace.

We certainly support the notion of free trade.  Through trade American consumers have access to a much wider variety of goods and services at lower prices than they would otherwise.  But there are a couple of important points.  First, free traders (like us) assume that there is also fair trade.  That is the rub.  The Chinese in particular, and others, do not play by the same rules as everybody else.  Second, the yawning trade gap perhaps indicates that current trade agreements like NAFTA, as well trade agreements with Europe and Japan, were not well negotiated and allowed other countries to take advantage of the U.S.    One can make a case that the U.S. has been subsiding growth in other countries at its own expense for years.  Trump has decided that is true and has chosen to impose across-the-board tariffs.  Initially, the U.S. tariffs generated retaliation by many other countries and it appeared that a trade war was was underway.

But all of a sudden other countries began to believe that the U.S. could withstand a trade war better than anybody else and  foreign investors flooded into the U.S. stock and bond markets.  The dollar soared.  That money would be used to create new businesses, hire more American workers, and boost our stock market.  Elsewhere, the opposite was occurring.  Currencies were weakening, growth was slowing.  The U.S. was winning, the rest of the world was losing.  The question quickly became, how long could these countries withstand the pain?  The answer is apparently, not long.  A new agreement has already been reached with Mexico and Canada.  We are negotiating with Europe.  China, thus far, has not relented but we will see.

This has been a painful and perhaps scary process to see in action but, in the end, we may end up with both freer and fairer trade than we had initially.

Frequently exports and imports can be shifted around by price changes rather than the volume of exports and imports.  Thus, what is really important is the trade deficit in real terms because that is what goes into the GDP data.  The “real” trade deficit widened by $0.8 billion in September to $87.0 billion after having widened by $3.7 billion in August.

Increasing energy production in the U.S. is having a significant impact on our trade deficit in oil.  Since 2007 real oil exports have almost quintupled from $4.0 billion to $20 billion, while real oil imports have fallen from $42.0 billion to $32 billion. As a result, the real trade deficit in oil has been cut by about $26.0 billion or 70% in the past several years and is the smallest since the early 1990’s.  In March of this year the U.S. surpassed Saudi Arabia and Russia  and become the world’s biggest producer of oil.  By the end of the decade it should also become a net exporter of oil.  Very impressive!

The non-oil trade gap has widened significantly  in the past year to about $68.0 billion as non-oil exports rose 4.3% while non-oil imports climbed by 8.7%.

Stephen Slifer

NumberNomics

Charleston, SC


Nonfarm Productivity

November, 2018

Nonfarm productivity rose 2.2% in the third quarter after having risen 2.8% in the second quarter.   During the course of the past year productivity has risen 1.3%.  The 2.2% increase in the third quarter consists of a 4.0% increase in output combined with a 1.8% increase in hours worked.

Clearly, productivity growth has slowed in the past 15 years. From 2000- 2007 (when the recession began) nonfarm productivity averaged 2.7%.  In the past three years it has slipped to 0.9%.

Part of the problem could be that retiring baby boomers could be leaving both their jobs and the labor force, and taking some of their knowledge with them which is adversely impacting the growth rate for productivity.

The basic problem however, in our view, is that for several years businesses were reluctant to invest despite a record stockpile of cash, near record low interest rates, and a booming stock market because they were bothered by uncertainty about future tax rates, the inability to repatriate overseas earnings to the United States, the rising cost of health care which firms with more than 50 employees had to provide,  and an avalanche of onerous, confusing, and sometimes conflicting regulations.

But productivity growth is largely determined by the  pace of investment spending.  After several years in which nonresidential investment was essentially unchanged, it had a dramatic  surge in every quarter last year and the first three quarters of this year.  For 2017 it climbed by 6.3% and is projected to increase 6.8% in 2018 and 6.5% in 2019.  This turnaround in corporate willingness to invest clearly is a result of the reduced corporate tax rate, the ability to repatriate earnings at a favorable tax rate, significant reduction in the regulatory burden, and general confidence about economic conditions both in the U.S. and abroad.

These major changes in policy should unleash a continuous wave of corporate investment spending, and because the pace of investment spending largely determines the rate of growth in productivity ,productivity growth will climb from 1.0% or so today to 2.0% by the end of the decade  That, in turn, will boost the economic speed limit from 1.8% today to 2.8% within a couple of years.  The standard of living will grow 1.0% more quickly.  It will also help keep inflation in check by offsetting some of the increase in wages.  These policy changes represent the most significant economic events that  have occurred in years!

Stephen Slifer

NumberNomics

Charleston, SC


Purchasing Manager’s Index

November 1, 2018

The Institute for Supply Management’s index of conditions in the manufacturing sector fell 2.1 points in October to 57.7 after having fallen 1.5 points in September to 59.8 after having jumped 3.2 points in August.   The August level was the highest level for this index in fourteen years (May 2004 when it was 61.4).  Clearly manufacturing activity is humming.  If the PMI for October is annualized it corresponds to a 4.5% increase in GDP growth.

It is important to recognize that the overall index is the compilation of a number of different components — production, orders, employment, supplier deliveries, inventories, prices, the backlog of orders, exports, and imports.

The orders component declined 4.4 points in October to 57.4 after having declined 3.3 points in September.  This series peaked in December at 67.4 which was the highest level for the orders component since January 2004.   An orders index above 52.4  is consistent with an increase in the Census Bureau’s series on factory orders.  The ISM noted that “Customer demand expansion softened for the second consecutive month, with the index dropping below 60 percent for the first time since April 2017, when it registered 57.1 percent,”

In addition to orders, the production component fell 4.0 points in October to 59.9 after having risen 0.6 point in September.  The December level for production at 65.2 was the highest level for production since May 2010.  Thus, the pace of production continues to climb and given the rise in orders it should gather momentum in the second half of this year.   A level above 51.5 is consistent with an increase in the Federal Reserve’s industrial production figure.  The ISM reported noted that, “Production expansion continued in October. Labor constraints throughout the supply chain, impacts due to lead-time expansions and transportation difficulties continue to limit full production potential.”

The employment index fell 2.0 points in September to 56.8 after having increased 0.3 points in September.  The September 2017 level of 60.3 was the highest level for this index since  June 2011. It remains fairly  close to that peak level.  The ISM report said the following:  “Employment continued to expand, supporting production growth. Respondents continued to note labor-market issues as a constraint to their production and, more significantly, their suppliers’ production capability.”  While the economy is currently cranking out about 190 thousand jobs per month, the factory sector thus far accounts for only about 20 thousand of them.  Most of the jobs are coming from services and construction.  An ISM employment index above 50.8 is consistent with the Bureau of Labor Statistics data on manufacturing employment.

The backlog of orders rose 0.1 point in October to 55.8 after having fallen 1.8 points in September.   The May level of 63.5 was the highest level for this series since April 2004, when it registered 66.5 percent.  “Backlogs continued to grow, but at slightly lower levels compared to September. Continued low levels of customer inventory and strong new order expansion continue to support production requirements in the near term.”

The prices paid component jumped 4.7 points in October to 71.6 after having fallen 5.2 points in September.  The May level of 79.5 was the highest reading for prices since April 2011 when it was 85.5.   ISM officials noted that “The price increases across all industry sectors continue and at higher expansion levels than the previous month. The Business Survey Committee noted that price increases are continuing to soften in metals (all steels, steel components and aluminum). Increases continue in various basic chemicals, corrugate and packaging products, diesel, natural gas, freight, labor, electrical and electronic components, and products manufactured primarily from steel. Shortages continue in electrical and electronic components, labor, and freight,”  While price pressure remains strong, the index has seen some softening in the past several months.  A price index level above 52.4 is consistent with an increase in the BLS producer prices index for intermediate materials.

We believe that the economy is  expanding at a relatively robust pace.  We expect GDP growth 3.0% in 2018 and 2.9% in 2019.  During that period of time the manufacturing sector will continue to expand at a moderate pace.

Stephen Slifer

NumberNomics

Charleston, SC