Economic Report: January 12, 2015

The U.S. economy generated 2.95 million net new nonfarm payroll workers in 2014, the fastest annual pace since 1999. In addition, the unemployment rate fell to 5.6 percent, its lowest level since June 2008. One might quibble that these figures overstate the overall health of the labor market, with part-time employment and unemployment still being a challenge. Indeed, the participation rate remains near 30-year lows. Still, the data suggest movement in the right direction. Manufacturers, for instance, hired an additional 15,500 workers on average each month in 2014, with 762,000 more employees since the end of 2009. The sector currently employs just more than 12.2 million workers. Therefore, manufacturing employment has increased at a decent pace of late, consistent with a mostly upbeat outlook.

The minutes of the Federal Open Market Committee’s December 16–17 meeting continue to reflect increased optimism about the U.S. economy, with relative strength in both output and labor markets. Federal Reserve participants expect U.S. real GDP growth of 2.6 to 3.0 percent in 2015, with the unemployment rate falling to 5.2 to 5.3 percent and core inflation remaining below its stated goal of 2.0 percent. At the same time, they expressed worries that global economic challenges might dampen growth here.

Along those lines, the U.S. trade deficit narrowed to its lowest level of 2014. The decreased trade deficit in November, however, was the result of falling goods imports for the month outpacing the decline in goods exports. Petroleum trade flows helped to explain at least part of this decline, with crude oil imports plummeting to their lowest levels since February 1994. This illustrates the changing dynamics that come from the United States’ renewed energy abundance, but sharply lower crude oil prices also likely played a factor.

Beyond petroleum, U.S.-manufactured goods exports have been sluggish all year, with a slowing global economy dampening sales. Nonetheless, we have seen increases in our export figures year to date for the top-five markets: Canada, Mexico, China, Japan and Germany. (For more information on international trends, see the latest Global Manufacturing Economic Update, which was released on Friday.)

The latest data on new factory orders have also reflected some softness. New orders were off 0.7 percent in November, the fourth straight monthly decline. Moreover, manufactured goods orders increased only marginally year to date, up 0.7 percent, with a lot of volatility from month to month. On the positive side, new factory orders averaged $501.7 billion through the first 11 months of 2014, or 3.4 percent more than the $485.4 billion average for all of 2013. As such, new factory orders have generally moved higher at a modest pace, which perhaps helps to explain the increased optimism in various sentiment surveys.

Next week, there will be a number of reports on the health of the manufacturing sector, with regional sentiment surveys from the New York and Philadelphia Federal Reserve Banks on Thursday and new industrial production figures on Friday. Overall, it will be a busy week for economic releases. Beyond those mentioned, other highlights include the Beige Book, consumer confidence, consumer and producer prices, homebuilder sentiment, job openings, retail sales and small business optimism.

Chad Moutray
Chief Economist
National Association of Manufacturers